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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2007

Social Responsibility as Market Cache

Taking extra steps in life and in business can better position a company in a down market

r_02-04__vermillion_spotSocial responsibility seems to be the new trend in the business world. Companies are finding that by proactively establishing policies and programs that benefit their customers, employees and communities, they actually improve profitability.

We must make this our highest priority. Not only is it the right business practice, but it also is essential to our success and to our long-term viability as mortgage professionals. In this changing market, mortgage originators must be proactive, socially responsible professionals to survive.

Why now

Not long ago, market conditions were so good that success in our industry was easy. The past four years comprised one of the mortgage industry’s most-profitable periods in history. We enjoyed record-low interest rates and dramatic property-value increases. These two significant economic factors caused lenders to ease their underwriting standards. Combined with a resurgence of adjustable-rate, option-ARM and high loan-to-value programs, this yielded a boom in mortgage lending.

Now, however, interest rates are increasing, property values are declining, margins are shrinking and regulatory pressures and scrutiny are mounting.

As a result, the sales practices and positioning that were profitable in the boom years are no longer effective. In fact, the Mortgage Bankers Association predicts an 11-percent drop in originations this year. This follows an 18-percent decline in 2006.

By being socially responsible originators, however, we can continue to see success in our industry.

Why? How? For many, this simply means looking out for the best interests of your borrowers. It means focusing on people, not on products. It means making loans that borrowers can live with — loans that create long-term, not short-term, benefits.

It also means focusing on changing borrowers’ lives in a positive way, not simply closing a loan that leads to a commission. Being a socially responsible originator means having unfaltering integrity in all aspects of your business — from being honest upfront about how you can help your borrowers and the cost to do business, to fully disclosing all rates, fees and costs of the loan being offered.

Being socially responsible also means looking beyond your clients and toward the community at large. By doing so, you can gain respect among your clients and your peers, and you can set yourself apart from your competition.

Focus on people

Many loan officers focus on their commissions rather than on their customers. Because the mortgage business is a high-commission industry, this is a common mistake.

If you take care of your customers and make them your first priority, they will buy from you. The commission will follow naturally. By adjusting our focus to changing our customers’ lives, they will change our lives by choosing us as their mortgage partner.

Further, many mortgage originators tend to make this a product-centered business. This is because most of them think their product is a mortgage. Most originators start calls by talking rate and payment. They spend little time initially prequalifying borrowers and then provide a single loan proposal that is usually tied to the product they feel best fits the borrowers’ situation. It’s not necessarily the one the borrowers feel is best.

This is simply the wrong approach.

Our product is not a mortgage — it is money. Our customers use it to change their lives and their families’ lives. When borrowers come to us, they are looking for money. And they are looking for money to achieve personal goals of some type.

Our job is to understand why they need money, how much money they qualify for and what they would like to achieve in their lives with that money. By focusing on the borrowers’ goals instead of on the product, we change the transaction from analytical to relational and personal.

Focus on long-term benefits

Similarly, too many originators focus on short-term solutions for borrowers instead of weighing the overall needs and developing a long-term solution. In essence, they fix a broken arm with a bandage.

For example, during the recent real estate boom, millions of homeowners used adjustable-rate, option-ARM and interest-only products to purchase or refinance homes. Because of the low introductory rates available in the first few years of these loans, many borrowers purchased or refinanced homes that were beyond their means or accessed large amounts of cash they normally could not have borrowed.

The result today is that millions of homeowners are unsure whether they can make their next mortgage payment. Industry estimates project that as much as $1 trillion worth of adjustable-rate loans will reset this year. Monthly payments for some of these borrowers are expected to increase by as much as 25 percent. This is far beyond the increase in income these individuals will have seen in the past two to three years.

Although a good number of these loans may not have been closed through acts of deception, it is always the originator’s responsibly to act in the best interests of the borrowers.

In cases where these kinds of loans were used improperly, the originator will never get a repeat or referral opportunity with those borrowers again. The loan did not solve their financial situations.

To succeed and become a trusted and caring adviser to our borrowers, we must develop solutions that make a difference in their lives. We must first:

  • Understand the current market conditions and available programs;
  • Understand the borrowers’ life goals and lifestyle;
  • Offer product options that achieve their life goals and fit their lifestyles; and
  • Always act with good judgment, integrity and ethics.

Once we have this understanding, we can work toward finding long-term solutions for our borrowers’ needs. To become a socially responsible client adviser, start with asking your clients a few simple questions about their lives and their goals.

For instance, among other things, find out about their short-term and long-term financial goals; about their home and any anticipated changes in homeownership; about their income and how they expect it to change in the next five to 10 years; and about their retirement, college, savings and investment plans.

By knowing about these issues, you can determine the right loan options for the customers and match those to their overall income, qualifications, preferences and financial goals.

And by providing the right advice, you put the borrower in the right loan that leads to a sale. The borrower reciprocates through repeat and referral business. That, in turn, can lead to an excellent income and the satisfaction of knowing that you did the right thing.

Remember: The most important virtue of any mortgage professional is integrity. Don’t be concerned with the idea that telling the truth will cause people to use the information against you with your competition. By providing your customers with a loan that has more value and benefit than your competition, by developing a relationship that is more real and sincere than your competition, and by providing a loan that is different from your competition, borrowers will have no desire to shop around on you.

Even if they did, they would find that your competition is nothing like you.

Look beyond your customers

We work in one of the most cash-intensive industries in the world. But as an industry, our reputation for giving is negligible.

Many of us in the mortgage industry have enjoyed six-figure salaries. This places us in the wealthiest 5 percent of the world. Meanwhile, as of the last measure in 2001, 2.7 billion people across the world lived on less than $2 per day.

In this disparity lies great opportunity to enhance our reputation while helping others, promoting our profession and changing our industry in a positive way.

Although being a socially responsible originator, for many, starts with how you treat borrowers, it doesn’t stop there. If we want to live a productive, excellent and admirable life, we must expand that responsibility to our community and to the world at large. We can do that by dedicating and committing ourselves to the greater good and by giving our time, talent and treasure to purposes that make a difference and create a legacy. This includes not just giving a portion of our earnings to charitable causes but also devoting our time, talent and resources to charitable endeavors.

By giving back, we can find fulfillment that can strengthen our character as well as our personal and customer relationships. These relationships will, in turn, make us more successful.

Going forward

The mortgage industry, through no fault of a single individual, has cast itself in a poor light in past years. We all will feel the damage done by a few. It will grow worse as some borrowers realize the damage that could come from overextending themselves financially.

Originators must make a conscious decision to become much more than loan officers. We must become life-changers. This requires a commitment to being socially responsible, which must be reflected in the way we care for our customers. This comes from providing sound advice, exemplifying integrity and sharing our successes and talents with our communities and those in need.

If we live this out, we as mortgage professionals, as well as our industry at large, will not only regain the consumer’s trust and confidence, we will enhance our reputation and make a significant impact in people’s lives.


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