WE’RE HEARING that I was pleased to hear from many readers who read my column
Now, this week I am doing a lot of strategic work in Denver and experiencing the typical altitude headache on day 1. For me it’s the result of working hard to be clever on half of the oxygen and twice the attitude that you get in Florida (by the time most folks get to my state they’re old and too tired to give you much attitude, aside from road rage, that is). The dull thud in my head feels pretty much like what a lender experiences when their current lines of business start showing signs of drying up.
Fortunately, in Colorado the traveler has access to many forms of alternative medicine. In fact, I may want to investigate some alternative ways to dull the pain (Party On Garth!). Of course, I’m certainly not advocating that the mortgage industry pursue that kind of alternative medicine to lessen the impact of these difficult market conditions...even if it is legal now.
Last week’s column was about the control key; about being sure that you understand how your business is changing compared to the market. For example, at Stratmor we recently met with a client who was experiencing a big drop in lock volume. We were able to show them that while their lock volume was going down, their actual market share was going up. We also showed them that understanding their business is about having control of it, and knowing the numbers compared to the market is a big part of that control.
This week, we move to the second finger in the three-fingered salute—the alt key, which stands for alternate business options. This past year, we saw unprecedented interest in our Consumer Direct Focus Groups, primarily because there were so many lenders seeking an alternate channel for originating loans. As the market begins to change, many lenders are considering entering consumer direct while others think that consumer direct could be a declining channel, that the easy refinance volume is going away.
According to data I reviewed from Icon Advisory, purchase lock volume is up 14% in the past month, while refinance volume is going the other way. In fact, the no cash out refinance volume is down nearly 50% in the past two months while cash-out refinance volume is down about 30%. So, the easy refi is going away, but there are still plenty of refinance opportunities on the sideline and plenty of new purchase entrants beginning to look at the opportunity for buying a home. Although rising rates slow refinance volume, rising home prices work in the opposite direction, which may mitigate some of the effects of rising rates. And the Icon data also show that the percentage of purchases being done in consumer direct is also rising and has been for the past few years. We all know it’s hard to do purchase loans in consumer direct, but that is why you need the best marketing, and the data show that it’s possible.
Many lenders are taking the traditional approach to this change, trying to recruit and hire proven purchase-centric originators. But that is expensive. In fact, our compensation data shows that such originators are the most expensive to hire and retain. While this is undoubtedly better than smoking some weed, an alternate strategy is more appropriate.
The key for consumer direct is to have excellence across two critical elements that have been shown to drive success. The first is marketing, and alternate marketing techniques are critical. You need to leverage data to find those previous customers who are likely to still need loans. I wrote a column about these
I would also like to point out that these techniques—mining the data and taking action on the best prospects—can be leveraged by retail origination companies as well, and we have worked with lenders who have built best practice centralized marketing units which drive results for both retail and consumer direct. In this way, they don’t bet on one channel or the other; they bet that either channel will need that sort of support.
The second element of consumer direct is a management discipline that drives sales in a centralized environment. This involves a specific series of lead management techniques and technologies to keep the deals coming in while adequately measuring conversion. When you combine the data from the marketing with lead management discipline, you can get strong results even in a tough market.
Ultimately, if you embrace alternate techniques—the second finger—you give yourself a much better chance to succeed in a challenging market.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.
