For those in the Mortgage Business, the industry is facing a significant and long term transformation.

What data could we use today to analyze our operations and make decisions for the purchase market?

Learning from the experts: Adjusting the mortgage business model

by David H. Stevens, President and CEO at Mortgage Bankers Association


For those in the Mortgage Business, the industry is facing a significant and long term transformation brought on by multiple factors. This change will both affect the size of the market for years to come and change the nature of the business altogether.

For the last three decades plus, we have seen mortgage rates drop from approximately 18% in 1980 to approximately 3% just weeks ago. Through this history America refinanced their mortgages over and over again. This trend-line contributed to the industry growth even during recession markets, fueling the expansion of lenders and brokers of all shapes and sizes.

In the past year the Quantitative Easing program managed by the Federal Reserve, combined with HARP, drove volumes of mortgages to lenders everywhere. And, for those that didn’t participate in HARP, purchase volume picked up while margins also widened, allowing many companies to post record revenues. Fannie Mae’s own data reflects that about 75% of all loans were refinances.

With the Fed signaling their exit from QE, and with rates rising, two things are certain: the refinance market is essentially over and the shift from refinances to purchases will be enormous and long lasting. The MBA forecast expects total US single family mortgage volume to drop to approximately $1 trillion next year from about $1.7 trillion last year. This will come from a massive contraction in refinance volume and stable, consistent, growth expectations in the purchase market. For many it means a shift from answering the phone to making sales calls.

Billy Beane, the famous General Manager of the Oakland A’s who was featured in the movie ‘Money Ball”, spoke to our Chairman’s Conference recently. He spoke of how he uses data to make personnel decisions, often cutting high cost and seemingly star players simply because of the numbers. Getting on base – a simple calculus that trumps all others – removes subjectivity in decision making. As a result the A’s continue to be a winning team, a consistent playoff contender, and running on a tight and smaller budget.

Is there a lesson here? What data could we use today to analyze our operations and make decisions for the purchase market? Here are a few ideas:

1. Run an analysis of the entire sales force of your company. Look at total purchase units as a percentage of total origination units for the past three years. Stack rank the sales force by purchase percentage – getting on base. Make sure to look at units before dollar volume. HARP distorted real loan levels.

2. Run an operations analysis of processing times per loan per originator. Who has the lowest processing times? They might be the ones with the most complete files at submission and therefore the ones who might keep overhead the lowest.

3. Run a gross BP’s expense and a net BP’s revenue for the sales person and his/her entire team. Who operates most efficiently? Production credit assigned to your LO might actually be the work of others on the team or may come at an expense that won’t be supported in the contraction.

Next, take the data, remove the names, and list the players on a spread sheet with the data fields filled in. Call a meeting with your senior team and discuss the team without the burden of names associated with the data. The purity will allow all to look at team makeup and team needs without letting personal judgment weight the perspective.

Finally, work on retooling. A top loan originator over the past three years may become a low producing burden over the next three years unless there is significant retooling. Teaching selling skills and relationship building is step one. Developing a time and territory management plan that gives the LO a daily schedule of in-person sales activities with realtors and builders is needed to ensure a behavior change. Inspecting their skills in the field with you or a sales manager at their side is the only way to observe effectiveness.

Finally, what about you? When is the last time you worked in a purchase market? Are you ready for this? Can you afford not to be? This is a business and the entire customer profile is about to change. You are moving to a “pull through” sales environment where you will be pulling the borrower through a realtor or builder referral. To be good at this takes training, experience, tolerance for more rejection, and a thicker skin. We are moving to proactive selling versus reacting and responding to refinance requests.

It’s a new game plan. Data can be very helpful in analyzing how to be most effective. Training, management process, and situational leadership skills can make you more effective as a leader and developer of people.

It’s the lesson from Billy Beane – it’s also the lesson from the old days when many of us started in this industry and there was no QE, no HARP, and no texting. It’s from a time when this was a contact sport and relationships were built face to face.

Just some thoughts as we look ahead.