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].
