Adjust the way you look at your pipeline

As the spring finally finds most of the country and purchase activity continues to rise, one of the conversations I have been having with my coaching clients is to have them change the way they are tracking their pipelines. As the balance of the pipeline grows to accommodate higher levels of purchase business, we have to make adjustments in the way we track our business and learn to “rebalance” the way we calculate the results of our efforts.

When pipelines are carrying more refinance transactions, the client is likely in your active loan pipeline for a longer period of time than they are a purchase. Most times it is simply because there is no specific contractual date the loan must close by and clients and mortgage professionals have less urgency to get the deal done by a specific date. We all know how things always seem to get the most attention right before a deadline; that is often what happens with refinances. Since the borrower is already living in the house and there are no other parties involved, the only real items of concern become making another mortgage payment at a higher rate and the possible expiration of loan documents or rate lock.

With a purchase transaction we have a seller and likely two real estate agents involved in the deal in addition to all the things the buyer must deal with in moving, so timing becomes much more critical and is a larger focus. That said, purchase loans tend to move in and out of the loan pipeline much more quickly than refinance transactions do.

Mortgage professionals need to be aware of this and seriously adjust the way they look at their pipelines and change how they are tracking the results of their prospecting to compensate for the change in their business flow. This change also includes managing a much larger pool of pre-approved borrowers that are out looking for property. Yes, I did say manage the pre-approved borrowers! One of the biggest failures of mortgage professionals is the lack of focus on keeping in touch with the people they have pre-approved and that are out looking to find a home. Many mortgage professionals issue a pre-approval and simply wait for the client to come back to them once they find a property. Not the best strategy.

Pre-approved borrowers need to be communicated with on a regular basis even if just once a week to see if they are looking at property. Remember, if they aren’t looking, they can’t buy. If they don’t buy, you don’t have an opportunity to close a loan. Loan originators must maintain the relationship with the client on a regular basis or risk losing that client to someone else down the road. If you don’t show interest and maintain the value in the relationship, the customer may just go off and do their deal with someone else who shows more interest in their outcome!

Mortgage professionals that track their business from first contact and manage those relationships right through closing have a much better “pull through rate” than those that just issue an approval and hope the buyer calls them back when they find a property. Originators who also follow the composition of their pipeline as well as track the client from contact to pre-approval, then from pre-approval into their pipeline will often have a better feel for how they are doing long before the commission report comes out.

When you follow your clients through the entire process you can really get a great feel for how your business is working. Refinance heavy pipelines tend to be bigger and take longer to close. Purchase heavy pipelines tend to be smaller because the loans close more quickly. In order to manage these, you must begin tracking the client in the “pre-approval stage” more closely and monitor your “total pull through rate” which is the percentage of pre-approvals that roll into your active pipeline and then close. You will soon begin to notice a pattern of how long that incubation period is. Imagine if you knew these numbers? How great would it be if you knew that 20 to 30% of your pre-approvals rolled into your active pipeline each month? Imagine if you knew that the average time from pre-approval to active pipeline was 30 – 60 or 90 days? What if you knew that 70, 80, or 90% of your pre-approvals would close loans with you? Wouldn’t that put you in more control of your own outcome?

When I work with my clients I call this driving the car by looking as far down the road as you can. If you monitor your business only by closed loans, it’s like driving down the road using only your rear view mirror. It gives you an idea of where you have been but not too much in the way in what is about to happen. By tracking earlier in the process and keeping connected, you not only have a better idea of what is ahead of you, but you will convert a higher number of the people you have met into closed clients!

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Preapprovals; Fact or Fiction?

Some conversation has come about recently and a few articles about the benefits of getting a preapproval. Many claim that preapprovals are a useless document that only pay lip service to the word approval and through the use of multiple disclaimers, rely on the pretext “pre” to account for the fact that everything written on the paper is pure fiction.

There is no clear set of rules and regulations regarding the issuance of a preapproval. No formal guidelines exist, no set of rules to follow. Neither the consumer; nor any of the surrounding professionals involved with a transaction, have any idea how valid any preapproval may be unless they know who issued the preapproval and what documents were reviewed in order to issue said preapproval.

Since the mortgage and real estate community have not put forward specific rules and since the government has little to no interest in setting a standard, it is important that everyone become aware that these “documents” only have value if you know what method was used to reach the conclusion. This is where the reputation of the individual loan officer or company comes into play. Everyone needs to know how the results were obtained and what was looked at to come to the conclusion.

Here are a few simple questions that everyone should be asking when it comes to looking at preapprovals:

1) Was a tri-merge credit report reviewed?
2) What documentation was reviewed?
3) Was any of the information verified?
4) When was this information obtained?

If a loan originator or company doesn’t review a credit report that contains reports from all three major reporting agencies you are open to a painful surprise. Credit is critical to the ability of a borrower to borrow under favorable terms. We don’t need any surprises here, so why risk a deal when it is just easier to look at all three scores?

Many people never supply even minimal documentation. Some require borrowers supply everything from W-2’s – Paystubs – Tax Returns & Bank Statements. The only way you are going to know what was looked at to come up with the preapproval is to ASK THE PERSON WHO ISSUED IT!

In a time when listing inventories are shrinking, it is important for everyone to position a potential borrower as well as they can to make the best possible offer. Listing agents and sellers should take the time to review preapproval letters and ask important questions about who has issued the preapproval and their reputation for getting their deals done on time with little to no drama.

There are lenders in today’s market who are doing it right. They are working with potential borrowers to make them as prepared as possible to make a good offer under terms and conditions that will close as stated. There are even lenders who will guarantee their preapprovals! Yes, I said guarantee their preapprovals to close under the terms written and by the date given as long as the property qualifies for proper value, marketable title insurance, homeowner’s insurance, and that there are no material changes in the borrower’s circumstances since the preapproval was issued.

As mortgage and real estate professionals we all need to do a better job up front putting together transactions. We need to prepare our buyers and our sellers for what is likely going to happen during a transaction. Buying and selling a home doesn’t have to be a struggle or painful process. The consumer needs to ask some important questions and surround themselves with professionals who have the ability to deliver a hassle free experience. That is what professionals are there to do.

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Solving for “X”

We spoke about situational awareness last week and it leads to a really important follow-up piece this week called “Solving for X”. We solve for “X” when we are listening to our clients and help provide for them what they need, even if it’s not what they are asking for. A client may have in their mind what the proper solution is for their particular challenge, but while it may be what they think they need, it may not represent the best possible outcome.

The example we used last week was that we had a client ask for and receive a second mortgage even though it wasn’t the best possible solution. In this case, the client thought his best solution was a second mortgage. The better solution would have been to refinance the loan and take the needed cash out and lower his payments or shorten his term. He never asked for options and was never given them. It isn’t the customer’s job to know all the possible solutions available, it is the professional who is supposed to diagnose the situation and provide the proper prescription! A doctor would never just accept a patient’s self-diagnosis, they would conduct their own examination and either concur with that assessment or have their own opinion of the issue as well as the proper treatment. We all know that giving a prescription without examination and diagnosis would be malpractice. Yet when it comes to mortgage loans, it happens almost every day!

Each originator must listen to the situation and examine all the potential options before proposing a plan of action. Even if the client asks for a zero point thirty year fixed rate FHA loan, you need to look at all the facts and determine if this is the proper product. By the way, proper product doesn’t always mean lowest payment or cheapest closing costs. Some people have an emotional attachment to certain products or fear of them based on false information. Sometimes the customer asks for information about something because they have no idea that they have other options. Our job is to provide them with choices and let them choose from ALL that is available, not just what they ask for.

I had one case just this past week when a client “needed” to refinance his house to pull out cash to pay off some debt. In order to do that, he determined he would need a 95% LTV cash-out refinance. So off he went in search of the best possible rate he could get on the loan he needed. He began exploring the internet for rates on 30 year fixed rate loans and was very excited to see the possibilities. As he explored more, he began to realize that refinancing at 95% was certainly not as easy as he thought. Cash-out refinances at that level and taking cash-out to pay off debt was not as easy as he thought it would be.

This homeowner was becoming increasingly frustrated by lender after lender who either told him it can’t be done, or those who don’t ever return his calls! Then he finds my guy John. He shares with John his story and John realizes the same thing as everyone else; that this loan can’t be done the way this client is asking for it to be done. But instead of telling the client no, John thinks about what the client was saying and asked a few simple questions.

1) Do you have any type of savings or are you invested in a 401K plan?
2) Are you currently living in your “Forever Home”?
3) Is your ultimate solution to have all your bills paid off and have just your mortgage payment to deal with each month?

Now we were on the path to see what options this client had. This client had significant money in a 401K plan, was not attached to his current home and that the reason he wanted to pay off the debt was to reduce his obligations so he could save more money faster to buy a new home before the rates and prices went up too high. The answer wasn’t a refinance at all. The answer was to sell and purchase a new home. He could use the proceeds of the sale to pay off all his debt, and then use money from his 401K as a down payment on his new home. OR if the final sales price of his current home was high enough, just sell and buy without touching the savings at all. OR selling his home, buy the new home with a larger down payment and use those monthly savings to quickly pay off his outstanding debt. All three potential solutions achieve the real goal in a much better way for the client.

Solving for “X” means first know what the “X” really is! It wasn’t a 95% cash-out refinance that was the “X”. It was buying a new home and paying off debt. We all need to listen carefully and ask good questions. While most of our clients may be on the right track, we need to approach each customer as a blank slate and know that sometimes what they need isn’t what they asked for!

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Situational Awareness

Coaching mortgage professionals can become an interesting occupation when so many changes are around us. New rules, regulations, and guidelines seem to appear every day. Changing market trends from largely refinance business for most, into a more traditional purchase heavy market have left some originators grasping for the last wave of refinance business and others trying to recreate their businesses into a more purchase focused direction. There should be no panic in either direction for those making their living originating loans, what is required is a certain “situational awareness” that hasn’t been required for a while.

I bring this up as a result of a conversation with one of my clients this past Tuesday. John has been a client for a few years and has grown his business at a very steady pace from about $18 million in annual production to a little more than $35 million and still growing. So John isn’t a rookie by any means and he has always maintained a solid mix of purchase to refinance business in comparison to his local market. Any way, we were discussing a former client that he had lost touch with. This former client managed to find him and began to discuss a loan situation he had. It turns out that this former client had the original loan John had done for him years ago that was a 30 year fixed over 5%, and had went out and acquired a second mortgage that was at more than 7%. Clearly John had some work to do here. The client had more than enough equity in the property, solid income, and more than required credit that made this a very simple loan to do, and would save this client a lot of money.

John wondered just how this client could have ended up in this position. Who could have ever looked at this client and written a second mortgage when it made so much more sense to just refinance the entire loan. The answer was clear; the customer got exactly what he asked for. He went online, looked up second mortgages, found a few lenders and their offerings, and got his second mortgage. Nobody bothered to ask him any questions. Not even a glance to see that this situation would have been better handled by a complete refinance. Nobody asked, so the customer got exactly what he asked for!

We are required to have situational awareness. People aren’t really stupid; they often just make uninformed choices. I am sure if presented with the option of refinancing and saving a bunch of money, this client would have never elected to take the second mortgage. He didn’t know to ask. He was not aware that while he did have a way to fill his need, it wasn’t his best option.

This is our job. We are the professionals required to provide all of the options for our clients. We need to do a good job of asking questions. We need to listen to what the client says and know that what they might be asking for really isn’t what they need.

In today’s market we are seeing stress on homes listed for sale. We often have people in multiple bid situations, losing homes for a few dollars they could have easily afforded to pay for had they just known of all their options. We need to educate and inform our clients so that they make informed choices. We need to work with our referral partners and share with them the information on how to make transactions flow smoother. We need to become better each day at listening to our clients so that we are able to serve them better and allow them the freedom of know all of their options.

Situational awareness is the sign of a true professional. It requires gathering information and exploring options. What are the real goals of this client? What are they really looking to do? Does this client need a cash-out refinance, or would they be better served by selling their home and buying a different one? In the long run we are measured not by how many loans we do but by how satisfied our clients are with the choices they made from the options they had. Did you just do a loan, or did you provide a proper solution? Part of how we are measured is by how satisfied our clients were with the entire experience.

Listen to want the client says. Understand their goals and then help them select a solution to their specific set of challenges. It’s not always about the rate they get, the costs they pay, but the total experience of how they got from where they were to where the needed to go. Situational awareness is really what we get paid for and what keeps our clients happy and referring us to others.

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