So, every week I write a column in this space, and often I get some interesting feedback. But rarely does the earth move or the entire industry change based on what I write, despite the fact that I work very hard each week for the perfect 1,000 words to inspire my readers.
Well, last week, I wrote my normal column and was subsequently quoted in another story that ran in National Mortgage News. Those two features changed the entire industry for the better. So, for the next couple of weeks, I am here to take credit for my oversized influence and give readers a couple more industry changing tips.
Let's start with the quote heard round the world. Last week, long-time industry editor Mark Fogarty wrote an article about potential changes to Fannie and Freddie. Around paragraph 4, he included a quote from me stating, "Whatever they do, I hope they maintain that strong core of talent at the two agencies." My point, of course, was that the agencies have been major contributors to technology innovation and the creation of product and process standards for our industry. Obviously, this endorsement of the fine folks at Fannie and Freddie so moved their regulator that Mel Watt came out of the cone of silence to issue a series of announcements that would seem to indicate some changes in his approach to regulating them.
Based on his comments, I think we could see expanded credit criteria options from the agencies, a nice high loan limit for the foreseeable future and some clarity around repurchase risks for lenders. All of this likely means expansion of credit options for home buyers and signifies that perhaps the pendulum is beginning to swing back in the other direction—toward easier credit and more options for homeowners. Obviously, this is but a cursory analysis, given the few words I have to work with here, even taking into account the extreme power my writing seems to possess. But let me now focus on some recommendations for mortgage executives intent on growing their market share and, more importantly, managing risk as the industry begins to expand into higher-risk lending.
As we experience this change in credit parameters, the increase in alternate product options and the expansion of what is considered acceptable credit, each company will have to decide whether to be an early adopter or a follower. Early adopters have a chance to not just originate these newly qualified loans, but also to leverage the evolving product set to establish new relationships with Realtors and other referral sources. For the past several years, the typical LO has not had a lot of news to share with Realtors, other than low rates and vanilla products. But now, at the very moment product expansion is coming, Realtors will want to know what it means. The NAR fought hard for some of these changes, but it’s the individual Realtor that needs to know what it means to them.
The strong sales professionals will take this chance to become experts on the new product options and provide specific examples of how much purchasing power has changed, based on the new rules. As the rules change, and LO can give the referral sources examples of the types of borrowers who may now qualify and did not before. Then ask the business—if they can think of any potential home owners who might now qualify—and try to grow your business one referral at a time. Become the expert, and leverage that to grow share in your markets through outreach and education about these new trends.
This brings me to my second observation. In the example above, it may appear that I’m advocating the early adopter strategy, saying it's best to move quickly into these new segments. However, there is risk here, as well. If you are too successful, you could end up being the "low FICO" lender of choice, which may please your sales folks but may not please your regulators or other stakeholders. So, my second piece of advice is to carefully measure changes in your market share at a very discrete level.
A prudent executive needs to know how their market share is changing by measuring this on a regular, even weekly basis. It could be that your super engaged sales force is out there talking it up in the markets and you are suddenly getting a spike in high LTV and lower FICO borrower rate locks. It may be too much, too soon, and you may need to control that flow of volume. But you will not even know how successful your efforts are, or how much additional risk you may be taking on, if you don’t measure it against changes in the market.
This is also likely to reveal which of your salespeople are very effective at gaining share. These should be rewarded and recognized, while others should be encouraged to do more. Of course, it could be that the difference is a difference in market potential not based on the salesperson at all—certain product changes will impact some markets more than others. You can’t possibly benefit from these kinds of insights if you don’t monitor how you are doing in each market—and I mean right down to the MSA, county and city level. And don’t just monitor funded share—after all, that is what happens 45 days after the sale is done. Monitor the leading activity, including prequalifications, rate locks and applications. This is the only way to know your market potential and actual share in each market segment.
You may also find that being a leader in this outreach effort does not necessarily mean you will get all of the risky loans. In fact, I have seen companies that have launched outreach strategies for new innovative products and seen their share of the base products go up. This "halo effect" comes from the fact that salespeople are more successful at engaging in real conversations about solutions and then are top of mind when the next loan is ready to be placed. When you walk into a Realtor's office, they often ask some version of "what’s new?" A salesperson can be very effective by having an answer for this question that is based on real market expertise and actual changes in product options, even when that product is not exactly what the Realtor needs at that moment. It’s the conversation that gives the LO a chance to show their expertise, and earn the right to get referrals no matter what products are being sought. Monitoring share is a big topic, so feel free to send me a note if you want to discuss this in more detail.
By the way, the other thing that I think should be clear is that National Mortgage News should feature my quotes more prominently in their publications. If I can sway Mel Watt with one line buried four paragraphs deep, imagine what could happen if NMN just lead every article with "Garth Graham of Stratmor says…" Maybe I can get the CFPB to reverse course next.
(Disclaimer: Neither I, nor anyone at Stratmor Group, nor most rational folk believe that I actually influenced Mr. Watt in any way. I am not nearly that egocentric. Actually, if you really want to affect change, you should take a page out of the MBA’s playbook. That organization has done a fantastic job of influencing positive change, of which this is a great example. In hindsight, it's possible I've overdone it a bit and made too much of this article about me, and perhaps came across a bit self-centered. It’s not about me. It’s about you and what you think is important. So, please reach out to me directly and let me know what you think of me. Doh! I did it again.)
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience.