Broker-to-broker advice: Quit the race to bottom

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Of course I know that maybe one of the hottest topics in our industry today is about buying down rates.  I can say this plain and simple,  buying down rates as an entrepreneurial mortgage professional operating a one-person business or a small team is a terrible strategy.

I think, in part, the reason people get sucked into buying down rates is because they are focusing on the wrong metrics in their business.

Since the very beginning, mortgage professionals have gauged their success on their mortgage volume or, second to that, their number of transactions.  I think that worked when banks’ aggressive pricing and the online rate discounters were not squeezing our margins.

I think what will work infinitely better in the coming years will be to focus on your sales conversion ratio, and most important, the dollars earned per transaction.  

This shift to buying down rate can happen so slowly, but it is so incredibly damaging to a business that if I do one thing in this industry this year, it will be to help brokers see this more clearly.  

If brokers have a moderate slip in their sales conversion, because clients are shopping them after they present, my experience is that brokers don’t even realize it is happening, or they say to themselves, “Oh, well, I will just go get more leads.”

What happens, though, if, given their current commitment to marketing, the number of leads in 2013 also slips?  

Now what happens if in two out of the four deals a broker wins this month, he or she has decided to buy-down rates, or take a “special” rate with less commission from lenders, to compete and win the deal?  I encourage all brokers to change their focus in 2013 by considering the consequences of that very real scenario I’ve just laid out.

Before

10 Leads,   5 Deals at full commission

After

Leads Slip 10%, Conversions slip by  4 deals and Gross Revenue falls from $12,500 to $8,000.

This scenario, that I think is playing out everyday in our industry results in a whopping 56 per cent drop in revenue.  Brokers who have been caught in this trap likely have been thinking, “It seems I have been working as hard or harder than I ever have, but yet I am making less money and I have no idea why.”

If this scenario is speaking to you, well now you know why.  The next obvious question is “What will you do about it?”  

My position is that many trainers and other well-intentioned people offering help to brokers are often still espouse a get-more-leads mantra, which, of course, I think is really important, but not until brokers fix their sales conversion and sales mix problem.  

Even if I thought that getting more leads was going to be easy in 2013, which I don’t think it will be, the problem lies in bringing more leads into an already broken system.  It simply does not work.  You run the risk of getting caught in the never-ending spiral of working twice as hard for the same money. I think this ultimately leads to a lack of personal fulfillment, passion and motivation for your business and the sense that the business owns you, instead of you owning the business.

So, what to do then?  If you actually got better at closing the leads you already get, and learn to present solid mortgage strategies that people will pay more for and you use the best secret weapon of all – to confidently add 10-year mortgages to your sales mix – then you will have a shocking and dramatic effect on your business in 2013.

Now, let’s revisit that earlier example.

Today

9 leads and 4 deal

Tomorrow (with renewed focus)

9 leads ,  6 deals and gross revenue of $19,200

OK, I’m speaking directly to you, the broker reading this right now and saying “Yah, whatever; clients only care about rates.”

I hear this a lot in online chats and comments, and the truth is that’s a story lazy mortgage brokers make up to justify why they will not invest in themselves and just get better at selling.  

Of course, the easier road is to just buy-down rates and race to the bottom with everyone else.  The scary part is what if I win the race to the bottom?  

Alternatively, start on the game plan I’m laying out:  Go back and check your data for 2012.  Take the number of leads you got and divide that into the number of closed deals you had.  This is now your baseline. Track this number religiously on a weekly or certainly a monthly basis.  

Next, take the amount of money you earned in 2012, and divide it by the number of deals you did.  This is your other important baseline figure.  

If you see either of these numbers slide, then correct course immediately.  These are leading indicators for the most important measurable that any business should have: what is my revenue going to be?
 

  • Chris Richards - Mortgage Intelligence on 01/02/2013 8:22:21 AM

    "Of course, the easier road is to just buy-down rates and race to the bottom with everyone else. The scary part is what if I win the race to the bottom? "

    Absolutely don't want to go there and it PAINS me to see it happening.

    The formula for success is simple as I see it... Attract > Convert > Close > Delight

    As we move strangers down the funnel, at every junction we have the opportunity to **improve the conversion rate** by adding value to the process, as Greg suggests. If it used to be 10 applications from 30 contacts, what can I do to get 12 applications per 30 contacts? If I can convert and close 6 of my applications into mortgages, what can I do to close 7? If I get 100 bps on average, how can I get 105?

    Knowing your baseline (conversion rates) is hugely important ->, because if you don't generate enough leads OR improve your conversion rates, the income you are hoping for will NEVER show up. And note that DELIGHT means your clients care about you, that they are your fans, and that they will refer you, which means your lead to application to closing ratios just got stronger.

    Sending a message to mortgage lenders that we are willing to work for peanuts, is big cause for mortgage industry concern. And I'm not interested in a pay cut.

  • Ron Butler on 01/02/2013 9:29:41 AM

    Greg is right, discounting rates is not for small teams and individual brokers.

    We discount a ton and in order to do it we had to tear apart our operation and rebuild it in a way that is totally different than what almost any other brokerage looks like. We are still tweaking it and likely we will be refining it for years to come.

    The single most important thing to understand about rate sites and rate discounting is no mortgage broker gets to decide whether it will continue or not. Only the public will decide whether it works or not.

    Do full commission stock brokers get a vote on the discount stock brokerages operated by the banks and others? Do travel agents decide the fate of Expedia and Priceline? Does Yellow Pages call the shot on Google?

    There will ALWAYS be a full service, full price mortgage broker. Chris sums it up perfectly: "Delight the client" and it will come back to you in spades. What is being missed here is what all the lenders know: the public will decide what mortgage vendor they want not mortgage brokers.

  • Find another job while you still can on 01/02/2013 12:01:39 PM

    From a broker's standpoint, this make sense. Unfortunately, the broker ship is taking on water too fast to plug the holes.

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