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Opening Statement of Rep. Spencer Bachus from “Examining Proposals on Insurance Regulatory Reform” hearing

Apr 16, 2008

The healthy in-house lender relationshipPaul W. Wyliereal estate, mortgage industry, property transaction services Together, real estate and mortgage are a natural pair. They should connect as beautifully as a Magic Johnson no-look pass to Kareem Abdul-Jabbar did during the Los Angeles Lakers Showtime era. Far too often, real estate and mortgage companies fail to fully click with the one-stop shop business model consumers strongly desire. We fly in the face of industry studies, such as the study titled "Consumer Views on Realty-Based One-Stop Shopping," which was conducted by Harris Interactive, the Real Estate Services Providers Inc., Murray Consulting Inc. and the Realty Alliance. The study confirms that consumers prefer essential property transaction services found under one roof. When company cultures and industry traditions conflict and we fail to nurture the real estate/mortgage experience, we do our valuable clients a disservice and leave precious money behind unnecessarily. Here are simple gauges for the health of an existing in-house mortgage relationship: •If your conversion rate is 25 percent or less—meaning, at best, one quarter of all buy sides get their loans from the in-house lender—then you have a relationship that is under-performing by a substantial margin. •If your capture rate is 25 to 35 percent, then you have a good relationship. However, as Jim Collins has taught us in his landmark book "Good to Great," good is the enemy of great. These may sound like harsh diagnoses, but as said by the time-honored phrase: Numbers don't lie. In 15 years of in-house lending specialization, I have identified conversion rates of 25 and 35 percent as the benchmarks for effectiveness, along with telltale actions within the relationship that cause sub-par results. The word "relationship" is key, indicating an intensive, well-executed business decision. In the 25 percent and below conversion rate zone, I have consistently found agents treating the in-house lender like a vendor, not a fully embraced and utilized partner. They have a weak relationship with the mortgage company and/or its loan officers. The in-house lender is just another hanger on, like an outside company that brings muffins, bagels or magnets to a sales meeting. This "lender vendor" mindset stems from one behavior: real estate management's fear of doing something that might disrupt the company, shake up the status-quo, and endanger recruitment and retention. However, this is a classic tail wagging the dog scenario, as real estate management believes it is doing what's right for its agents. By abdicating the leadership role on the issue of in-house lenders and not fulfilling what clients consistently want, the real estate management only ends up putting its company at a disadvantage. Raising an in-house lender above the 25 percent conversion mark is a movement that originates at the top. Real estate management must not make decisions out of fear. Fully embracing an in-house lending relationship is a powerful commitment that benefits the resources and prosperity of every agent. Management must take the active lead by requiring agents to prove that the in-house lender is second-rate for those agents not taking advantage of the accountability of in-house lending relationships. This campaign should be consistent, firm and friendly. Management may then address the valid objective issues with their in-house lending resources. The essential cultural difference here is an opt-out versus an opt-in position. Setting these expectations has profound and profitable results. The real estate management is best served by actively promoting frequent reports of in-house lending achievements, including total transactions closed, difficult transactions solved and testaments of customer satisfaction. It is crucial for real estate management to set expectations of "at bats" for the in-house lender—namely, opportunities each agent gives the lender to compete for a client's business. Notice I indicate "compete" for the business—the lender must approach each relationship with gratitude and accountability. A conversion rate exceeding 25 percent is a good sign that some agents are referring buyers to the in-house lender. However, anything less than 35 percent is still a shortfall, with the burden of responsibility shifting too much to the loan officer. Lenders must fulfill their obligations when they are being provided very valuable opportunities to compete for a client's business. It's easy for mortgage professionals to get lost in their deals by focusing on figures, loan guidelines, damage control and deadlines. In order for an in-house lender relationship to rise from good to great, the loan officer has to come out from behind the desk and join agents in business development, namely by converting contacts into closed sales. Additionally, the lender must provide written service level guarantees to deliver consistent reliability. The loan officer must move to the front of the real estate agent's sales cycle, helping attract and win future clients. This is when the power of the in-house lender relationship becomes most apparent. A fence-sitting buyer or prospective buyer may not be aware of government-backed loans with low downpayments and flexible credit history criteria—until an agent hands him an instructive flyer provided by the in-house lender and schedules a free mortgage consultation. A hesitant homeowner may not be ready to list in an uncertain market, until an agent tells her about a seller buy-down program—a program from the in-house lender which can lower a buyer's monthly payment and close a deal without resorting to more costly price reductions. The loan officer must be a recurring speaker at sales meetings, discussing trends and products with the agents and presenting scenarios for motivating buyers and sellers. New agents are a particularly important audience, as the loan officer often fulfills a mentoring role to new agents early in their careers. Loan officers must also assume a new, proactive role in contact conversion. Agents typically throw away valuable contacts by focusing on hot buyers, which is both understandable and unfortunate given limited time and resources. By sharing databases of contacts obtained from marketing sources including ads, flyers, Web sites and yard signs, agents bring loan officers into the process. The two professionals join forces to incubate contacts that would have been lost in the past. Note that these actions are consciously breaking a tradition. Within a strong in-house lender relationship, a loan officer no longer quietly waits for an agent to bring in deals. He is a partner from the start. An in-house lender relationship conversion rate exceeding 35 percent illustrates this mutual success. A real estate company has to protect its reputation. This reputation is readily accomplished through a strong relationship with an in-house lender, which creates accountability and improves the client experience. Over 60 years ago, Franklin D. Roosevelt told the nation that all "we have to fear is fear itself." As we face today's down market, Roosevelt's immortal advice still holds. Mediocrity is unacceptable in these uncertain times; it is the slippery slope to business failure. A healthy in-house mortgage relationship with a high conversion rate is a good- to-great vehicle. As Jim Collins established in his landmark research, confront the brutal facts, yet never lose faith. Profits, productivity and pleasure levels all rise when real estate companies and lenders actively and consistently work together in an environment of directness and void of blame to give consumers the experience they deserve. Paul W. Wylie is founder and CEO of Metrocities Mortgage Corporation. He may be reached by e-mail at [email protected] or [email protected].
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