If there’s one warning that every mortgage originator should heed during the COVID-19 pandemic, it’s that complacency is dangerous. Given the swiftness with which the pandemic upended life, this seems obvious enough.
Yet the risk of surging complacency among lenders and originators remains real as home sales reach record highs and the refinancing boom continues. It’s tempting to simply surf the wave. When it breaks and loan defaults crest, what will keep mortgage professionals from being beached? The solution is a strategic focus on revenue streams that are more resilient to sudden market swings, and now is the time to put these plans in place.
One particularly attractive source of revenue to explore is the high net worth borrower segment, specifically consisting of individuals with $2 million or more in investable assets. The appeal of these borrowers is that they tend to be relatively unaffected by economic downturns. Many will continue to utilize jumbo loans to refinance or purchase new homes, so they can be a source of revenue stability against the economic headwinds to come.
Before lenders and originators start to actively market to high net worth clientele, however, it’s important to consider the service ramifications. These people can become your most valuable clients, but a poor experience also can also make them your most vulnerable ones.
Indeed, the deck is stacked against capturing their loyalty from the start. The often protracted and inflexible underwriting process can be frustrating. Subjecting these clients to it is like asking them to wait in line at their nearest bank branch to cash a check. There is a real fear factor that a poorly managed transaction will inadvertently open the door to poaching from competing lenders. Any slip-up will cause these individuals to look to other lenders that are eager to leverage a mortgage into gaining all of the client’s banking and financial-advisory business.
Given these risks, how should mortgage lenders and originators transform their operations to align with the service expectations of high net worth individuals? The companies that offer specialized expertise, availability, flexibility and privacy will gain an advantage.
The difference between the typical retail lending process and catering to high net worth borrowers will be stark, and it will require mortgage companies to have vastly different skill sets. Every team member and outsourced partner will need to consistently exhibit their talents.
Consider the appraisal process. Evaluating a luxury property is more complicated and time-consuming than the typical home. Accurate valuations require specialized expertise with large and often unique homes. Take, for example, the Florida homeowner who last year put his luxury estate, complete with an airstrip long enough to land a Boeing 747, on the market. How does that factor into the valuation?
Appraisers must act and dress professionally since there is a chance they will engage with the homeowner during the inspection. They also must be willing to put in extra legwork to ensure the appraisal report is correct, thorough and defensible. In addition, high net worth borrowers often have challenging schedules that may create a squeeze between when the inspection takes place and when the report is due. These are not assignments for lenders that seek appraisals from the lowest bidder and award them based only on price with no consideration for local-market knowledge.
Availability and flexibility
High net worth clients will likely want little or no involvement in the transaction. Instead, they will expect their attorneys, financial advisers and other trusted partners to represent them from start to finish.
The schedules of these partners also tend to be unpredictable. If, for instance, they need to meet at night or on a weekend, a lending team must be prepared to jump on a call or travel at a moment’s notice. When these clients purchase or refinance a home, they’re often doing so as part of a broader wealth-management strategy in which timing truly is everything.
The title and settlement process also needs to be reengineered for clients that expect white-glove service and to not be bothered with the details. Title companies with 15-day turn times are not an option. Neither are voicemails or emails that go unreturned for hours on end. All parties involved in these types of transactions expect immediate responses and answers. Clients may be in different time zones or even different countries, so lending teams need to be available 24/7.
Importance of privacy
For any number of reasons, the last thing wealthy clients want to see is their transaction in the headlines. This is especially true for high-profile or celebrity-status clients.
Real estate transactions may be the result of a controversial settlement of a family estate, a pending divorce or the decision to make a significant career change (such as when former New England Patriots quarterback Tom Brady went house hunting in Florida, signaling his move to the Tampa Bay Buccaneers). Mortgage and title companies that specialize in high net worth transactions must receive privacy training and be willing to sign a nondisclosure agreement. The same goes for notaries assigned to the closing.
The good news is that once a mortgage company puts a process and team in place for high net worth transactions, they will be providing a new and valuable service that private-wealth bankers or financial advisers can offer with confidence. These jumbo loans are profitable and desirable for secondary market investors. And they’re a relatively straightforward diversification play at a time when lenders and originators need a stabilized revenue stream. So, stop allowing the industry waves to be your guide and start steering the ship instead. ●