Mortgage originators need to have a different mentality when going after purchase business in a
A home purchase is a different emotional experience that requires a different mindset than dealing with an existing home owner refinancing their loan, said mortgage compliance expert Rebecca Walzak.
Loan officers need to be made aware of what the differences are in working with a client who is buying a home versus one who is refinancing. Most importantly, the loan officer has to make sure the buyer has the cash or a good source of funds for the down payment, she said.
Overall, originators need to consider making a change in their focus from a risk management standpoint as interest rates rise and they receive more purchase applications as opposed to refinancings, said Walzak, who is owner of rjbWalzak Consulting Inc.
Walzak continued that the LO must look at the sales contract to make sure it does not indicate “excessive” seller contributions. And the LO must make sure the client was truly prequalified for the loan and property.
She said she has seen cases where the borrower said they were qualified for $500,000; but that only if the loan-to-value ratio was 80%. And guess what, the borrower is unable to put 20% down.
Sometimes, the proposed home to be purchased “is really not the best deal for the buyers,” Walzak said. Loan officers have to be able to analyze to see if that is the case. They have to be able to tell the borrower that despite what the Realtor said, this is the issue that needs to be addressed in the loan application.
“If they don’t qualify, be honest enough with (the borrower) to say 'you really qualify for $X amount of a mortgage.’
“You have to start the application correctly. If you make sure everything is analyzed before it gets to underwriting,” it won’t blow up, Walzak said.
She said loan officers need to be aware of what the other properties in that neighborhood which are on the market are selling for. It is the last thing someone wants to see that after going through the whole process, the appraisal shows that the property was overvalued. “That is a real risk today, because there is such a divergence in neighborhoods,” Walzak said, explaining that one part of an area might have a lot of foreclosed properties for sale, which drive prices down.
While a Realtor might want the house to be valued at $500,000, is that a realistic number and are there the comps to support that?
Loan officers need to have to get used to dealing with the new regulatory environment. The new rules, for example, stress training for employees, so loan officers need to be educated about what the requirements are for them on how to do business and what all the products available are.
She continued loan officers could have a problem going forward if they do not give the borrower all of the options and helping them make a decision on what is the right product for them.
Keith May, audit partner and director of assurance services from the accounting firm of Richey May, said there are things originators can do to fix their business to deal with the changing environment.
First off, they need to go back and concentrate on the thing that is their competitive advantage in their marketplace. In the post-bust years, most originators were making money on almost everything that came in the door because times were so good.
Now they need to go back and sell to their strengths and highlight that competitive advantage they have over the competition.
May added those people who don’t have a distinct area where they have a competitive advantage will have a problem surviving. For those who got overly heavy with refinancings, “you probably need to retrain, retool, relearn, so that you can move over into the purchase market,” he continued.
Among the ways to differentiate oneself in the marketplace includes service, speed, effectiveness—“however you can do it to maintain that edge. You just have to better than everybody else at something,” May said.
Another point in dealing with the new business environment, which includes tighter margins, is to make oneself more effective and more efficient. There is a lot of room for improvement in both of those areas, he said, because it was not an area that people paid attention to during the recent refinance boom.
May predicts lenders and originators will be looking at the process itself to find ways to streamline and make it more seamless for the customer.
He suggested to start looking at the entire application/origination process from start (the first meeting with the consumer) to finish (closing). Look for the ways to make things more efficient, where you can cut time out of the process while at the same time building in loan quality at the front end so the company will not be dealing with them at or after the loan closes.
At the same time, originators should start viewing the process from the customer’s stand point and seeing what you can do to make things easier and beneficial for them, May said.
This is true even in the new origination environment which demands more paperwork from the borrower than in the go-go no-doc, low-doc, streamlined processes days during the boom.
At some point during this cycle, originators will probably make cuts to their back office staff as application volume declines. Purchase loans do take longer to work through the system, but the margins are also better, which makes up for the additional time.
Technology can help companies to reduce their margins in the tighter environment. Efficiencies and effectiveness can be gained by using the right technology, but companies have not been focusing on this area recently, he noted. But as the market slows, originators will have the time and the desire to start smoothing out their business processes.
