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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2007

Focus on Training

Stay strong in today’s environment by educating clients and yourselves

In recent months, defaults and foreclosures have reportedly been reaching record highs. Many people attribute this to the increase in fraudulent stated-income loans over the past few years. Indeed, many industry players contributed to this rise — from brokers who helped borrowers into these loans to lenders who loosened underwriting standards to help more borrowers qualify.

Our industry lacked the discipline required to monitor our own loans. This resulted in many nonprime lenders closing their doors in recent months and in record numbers of foreclosures.

Now, however, we must turn this around. One way to do this is through education; we must focus on training ourselves and other mortgage professionals, as well as on training clients. Training is imperative for our industry.

Teaching from within

Many mortgage companies promote training to their new and existing mortgage brokers and loan officers. But when it comes to the actual instruction they provide, most of these companies get an “F,” which stands for “forget it.”

When they do offer training, it generally consists of a lender’s account executives coming in and talking about their programs and any specials they have running at the time. During their talks, they throw out 10 to 20 industry terms that go right over the newer brokers’ and loan officers’ heads.

Periodically, you may find a company that has a semiformal training regimen. It may consist of a number of tapes and/or books that brokers and loan officers review at their leisure. A more formal program may even consist of a test to make sure participants picked up on key points during the training.

It is imperative that formal instruction actually take place, however — and that goes for existing brokers, as well. Too often, untrained or partially trained brokers and loan officers put their companies — and themselves — at risk.

I often hear that brokerage companies don’t have the time to offer classes. That is a lazy excuse. There are many ways to implement training for your brokers and loan officers. Many lenders have non-sales-oriented training sessions available in each region. In addition, many speakers and other educational resources are available.

One company-owner has said that if brokers were trained on everything they need to know, they would leave and start another company. This may be true, but if you consider how much time and effort it takes to operate a successful business, education is necessary to keep the good brokers and loan officers with you. Give me 10 trained brokers over 50 untrained ones any day.

If you work for a brokerage with no training, look outside your office for help. Find out through your account executives where the lenders’ next trainings are; watch for fliers on upcoming seminars; buy your own tapes; and look to state and local mortgage-broker associations for upcoming programs.

There is no excuse for a lack of training. It’s out there and readily available.

Train the clients

It also is essential to instruct clients on the mortgage process. To start, they must understand that four main factors determine whether they qualify for a loan: income, credit, mortgage history and home value.

Then you must help borrowers understand the income factor. If more borrowers had understood the income factor in recent years, our industry may not have so many of the problems it is facing today.

There are four basic ways to document income: full documentation, stated documentation, no documentation and with bank statements. Under the stated-income category, brokers and lenders can do several types of loans, such as: stated-income, verified assets; stated-income, stated assets; stated-income, no assets; and many other variations.

If I had to write down a simple procedure regarding how to state income, it would be this: You must put a budget together with your clients to show them where their money is coming from and where it will go. This isn’t just to calculate a debt ratio (although it is an excellent guideline for doing so), but it is also to determine how much money is left over at the end of each month.

Include all of the clients’ expenses in the budget, such as: car and travel expenses, insurance, food, clothing, entertainment and vacations, just to name a few. When your clients are done with their budget, they should have some money left for savings and for a rainy day. If they are in the negative after calculating all other expenses, you have a bad loan. Most brokers fear having to tell their clients that they don’t qualify for a loan, but it sometimes must be said.

By completing this budget, you demonstrate to clients the amount of income required to qualify for a loan. And you’re not just telling them — you are actually proving to them that not having enough income can lead to foreclosure.

•  •  •

The change in our industry in the past few years “loosened the screws.” As our business goes through another period of change, some people would say we are going back to the “good old days.”

The market is not dead; there are many good loans waiting for you right now. Your job is to focus on putting good loans together for lenders and assuring borrowers they can afford the loan you are providing to them.

Explain the loan to clients, and make sure you put them into a loan they understand and can afford. Teach them how to survive this market, and you will have clients for life.



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