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There’s a saying in most major professional sports: “Defense wins championships.” It’s safe to assume that the team that reaches football’s Super Bowl, or basketball’s World Series, hockey’s Stanley Cup or basketball’s Finals knows how to score and put a lot of “points on the board.” But it’s the team that is better able to stop the other team from scoring that takes home the trophy. In other words, your defense better be good.
In my view, the mortgage banking business is no different. Sure, a lender’s goal is not to win any championships–not that that a lender wouldn’t like to. But mortgage companies that grow consistently year after year are usually those that know how to sell loans and protect themselves from getting in trouble. And with scrutiny increasing over loan quality, borrower qualifications and so-called qualified mortgages, it’s more important than ever for lenders to have a good defense.
But how does this happen without sacrificing production? Every company is different and must decide for itself. After more than 25 years in business, however, I can tell you what works for us:
Automate the disclosure process
It’s hard to be in the mortgage business these days and not feel as though there are too many hoops to jump through. The level of documentation and steps required to sell just a single loan were already high before the housing crisis hit. If we are to be totally honest, however—and if we really care about doing things the right way—would realize and be grateful that technological innovations have far outpaced the increase of new regulations and guidelines. In other words, the work is harder, but the technology is actually making it easier. And if that’s not true for you, you may not be using technology correctly.
For example, we frequently hear how complicated it is for lenders to handle the disclosure process. When do you do it? Who does it? How do you know if it’s been done? As a result, we frequently hear of borrowers receiving no disclosures or being asked to sign the same disclosure twice or even three times. These stories always puzzle me, because there is a plethora of cloud-based software available that can automate the entire disclosure process. In our case, we built our own system, but there are many other solutions available that are affordable and can do the trick.
Today’s technology can do everything from determining which forms to give each individual borrower—based on the unique characteristics of the applicant and type of loan—to sending documents, allowing borrowers to sign them electronically, and following up with borrowers within a certain time frame to make sure they don’t forget. Having this level of automation in place frees up loan officers to spend more time selling or coaching borrowers through the process, which is where they bring the most value. My company uses automated technology for everything we possibly can. By doing so, we’re able to ensure that all the proper forms are sent out early in the application process, signed and tracked properly. This ensures that nothing gets missed and keeps our sales force focused on selling.
I would like to add that it’s not just disclosures that can be automated. The mortgage process is filled with tasks that can be streamlined by automation, such as pre-close reviews and borrower checklists. No single company has a monopoly on these tools, as they are available to anyone to buy or create. We can worry all we want about how many new steps our elected officials and regulatory agencies give us to handle. But the fact remains that today’s software is capable of handling ten times as many steps as we currently face today and continues to improve.
Take your training online
It ought to go without saying that training is not only critical for every lender, but a duty as well. Fortunately, technology makes a mortgage company’s training responsibilities much easier, too.
Several years ago, we made the decision to take our training online, where loan officers, managers and production staff can go to learn in a team environment or seek help with any particular issue at any time. We’re all able to access online training courses which cover everything from our compliance policies and procedures to working with various loan products and protocols for when certain issues develop. All of our training material is provided via Web-based meeting environments that are combined with conference calls and through online training modules that are accessible through our Intranet on a 24/7 basis.
Whether training is done online or offline in a classroom environment doesn’t matter too much. Surely online training is more efficient, especially for a retail lender of our size with branch offices in multiple states. When training is done online, it’s much more convenient for everyone’s schedules. It also makes it easier to incorporate and share government bulletins about new financial services rules and procedures, and to use companies that are caught operating outside of the law as examples of what not to do. But live training is certainly better than no training at all. Amazingly, many lenders don’t provide much training to their staff, even as compliance risks continue to grow and as lenders are beginning to get punished for things such as failing to make proper disclosures and poor record keeping. Talk about a recipe for disaster!
Of course, not all training has to be about compliance and doing your job properly, either. Smart lenders educate their teams on the latest sales strategies and how to increase production, and are generous about sharing success stories from within the company and around the industry. It is true that mortgage sales professionals do not need to be told to sell more loans, but any salesperson has the potential to improve his or her game. Training should include techniques on how to educate borrowers on the latest changes in the housing market or interest rates, which is another way for loan officers to demonstrate value.
Build a support team
As the Consumer Financial Protection Bureau (CFPB) has already shown in its short history, the penalties of non-compliance are no joke. The government-sponsored enterprises (GSEs) and private investors have their own rules and guidelines, too, as do many state governments. Even many cities and counties have ordinances that could impact mortgage loans. For example, some cities require certain property repairs prior to sale that could affect an investor’s requirements for the loan. Other times, there’s a question about how and where a borrower received the funds for a down payment that could trip up the underwriting process and keep the property sale from closing on time, which isn’t fun for anybody.
Several years ago, we made the commitment to create our own in-house compliance team and “scenario desk” to help answer questions from our loan officers. Members of our compliance team are accessible long past business hours, so that questions that are routed from borrowers are answered quickly. This way, loan officers can help borrowers through the decision-making process fast and easily. It’s a little bit of an investment, sure. However, it’s cheaper than outsourced legal help, as attorneys are frequently dealing with multiple clients and as such are not always up to speed on the specifics of your business.
The payoff is tremendous, too. If you’re a loan officer, there are always going to be questions that you cannot answer or that you couldn’t even imagine. The ability not just to have answers but to get the answers is critical. Borrowers deeply appreciate lenders that respond quickly with answers, as such service reduces the natural anxiety they have about buying or refinancing their homes.
I’ve relayed why I think great defense and great offense is so important in both sports and the mortgage business. But these two areas differ in one very important respect.
In every professional team sport, there are only a limited number of teams and a limited number of players allowed on every team. That means not every team will have a great offense and a great defense; some teams are going to have a great offense and a mediocre defense, or a great defense and a horrible offense. Some teams won’t be able to score or defend. Just as one team must finish on top, another team will finish at the bottom.
This isn’t so in the mortgage banking game. While we all must play by the same rules, we’re not limited by how big our team is, or who we’re able to hire. We all get to define success pretty much any way we want. At the same time, no mortgage banker can make it today without some sort of balanced attack–a strategy to produce business and stay out of crosshairs of investors and regulators.
With the housing outlook improving every day, and with the opportunities for growth increasing into 2015 and beyond, there will be plenty of chances for lenders and mortgage professionals to put points on the board. But you won’t be able to truly win if you can’t protect yourself from attack. The best in our business have built a solid defensive strategy or sought out companies that provide training, compliance and support, so they can take full advantage of the market recovery. Have you?
David Williams is vice president of RightStart Mortgage, a mortgage lender based in Pasadena, Calif. that provides a range of conforming, non-conforming, FHA, VA and USDA products. Williams has 17 years of experience in all aspects of the mortgage business. He can be reached by e-mail at [email protected].