Maximizing Margins in a Slowing Market
Teitelbaum, Daniel, Mortgage Banking
Leading production executives from around the country share some best practices for increasing branch profitability, loan officer recruiting and retention.
As mortgage revenues and profitability have dropped over the past year industry-wide, how are lenders maximizing their margins to maintain financial strength and take care of shareholders? * Across the industry, the retail executives and managers I talked to are laser-focused on the same three management competencies: driving up profitability at the regional and branch levels; retaining their producing loan officers; and redoubling efforts to increase recruitment of loan officers. * To learn some best practices the industry's top lenders are using in these areas, I interviewed dozens of retail executives and regional and branch managers across the nation. The executives interviewed come from a range of major companies including Wells Fargo Home Mortgage, Des Moines, Iowa; GMAC Mortgage, Horsham, Pennsylvania; American Home Mortgage, Melville, New York; Countrywide Home Loans Inc., Calabasas, California; Huntington Mortgage Co., Columbus, Ohio; Chase Home Mortgage Corporation, Edison, New Jersey; and many others. Due to space constraints, this article highlights only a few of the scores of successful management tactics they described.
The following three management competencies you're about to read about are becoming increasingly intertwined:
* Top managers are focusing not only on getting more margin out of each closed mortgage, but on increasing branch revenues through successful employee offense and defense. By this I mean they are hiring new loan officers away from competition as well as guarding their own top producers from being hired away.
* In addition, lenders are increasingly tying the success of each of the three competencies to each other. One example is that growing numbers of lenders are now partially or fully compensating their loan officers based on the net dollars they bring in to their branches, as opposed to revenues.
* One striking trend we're seeing is that many successful managers are enlisting and training their loan officers to help them drive not only profitability, but recruiting and retention as well.
Uncover your borrowers' core values. It's never appropriate for a loan officer to tell an applicant what kind of loan to apply for; on the other hand, it ought to be a loan officer's focus to educate applicants on all their available options, as well as the advantages of mortgage types that may be more profitable.
One valuable step loan officers should always take is to uncover their borrowers' core values as they take their application. By this I mean it is important for an originator to understand those features that might generate the optimal, most comfortable loan type for the borrowers.
Some borrowers, for example, aren't comfortable taking out a variable-rate second mortgage in a standard 80-20 arrangement, due to whatever security or comfort factor they need. If a loan officer uncovers this while taking the application, he or she ought to then explain the many benefits a Federal Housing Administration (FHA) mortgage can offer.
Because the secondary market charges a higher rate on the first in an 80-20 mortgage-and charges less for an FHA mortgage-the consumer may end up having a similar monthly payment regardless of product type. Your branch, of course, will realize more profit from the government product. It's important to note that FHA has recently made its product more user-friendly and deleted a number of cumbersome property as well as appraisal conditions.
Promote your company's "golden loans." A number of the lenders we talked to offer unique mortgage products that may be considered industry "best of breeds." These products are not only superior in pricing and options to competitors' similar offerings, but are structured to be highly profitable. …