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Thinking in the Long Run

in God we trust Today I received a phone call from a former client; we'll call him "Mr. J". This guy is every mortgage broker's dream: He has outstanding credit; he is polite and respectful to his loan officer; and he remembered to call me back a year later.

As he was talking to me, I realized that this man has 100% trust in me. He is not going to shop around. He is not going to question anything I say. He will just take my advice and sign the papers.

Man, I could really clean up with this guy. But read on...

Realtors: Did you know that mortgage brokers are allowed to make up to 5% on conventional mortgage loans? Yep. Between what we make on "the back" and any points or fees on the front- it can total as much as 5%.

Legally, that means I can earn up to $15,000 on a $300,000 loan.

On sub-prime deals, we are allowed to make even more. I am pretty sure that we can make up to 8.99% on a sub-prime (bad credit) mortgage. Any mortgage people out there care to help me on this one?

Now hold on a second! You are probably thinking: "Karen is the branch manager of her Arizona Mortgage company and she isn't sure what the maximum commissions are?"

What kind of manager could I possibly be?

I am the kind of manager who doesn't take a 5% commission on 99% of her deals. I have definitely never, ever earned anything close to the 8.99% on a subprime deal.

To be totally honest, I do understand when mortgage brokers take the maximum commission. Some deals are particularly difficult. For example, a construction loan is about ten times the work of a Fannie Mae 30-year fixed rate mortgage with perfect credit. It could definitely be argued that a mortgage broker should earn 5% on a new construction loan. Dealing with blueprints and builders and permits and everything else...

I just try to avoid construction loans.

Anyway, I digress. Back to my guy:

As I realized that "Mr. J" has complete trust in me, I also realized that I could "max out" my commission and he would never even check on it.

Many mortgage loan officers would seriously take advantage of this situation. They wouldn't think twice about taking advantage of a client's trust. The wheels are already greased! Just collect the paycheck!

I believe this to be a fatal mistake. You've heard that you "reap what you sow", right? We need to sow our seeds with the future in mind at all times. Things are slow right now and many of my former competitors are now cleaning pools or back to their salaried office job or whatever it is they did before trying to make a quick buck in the real estate business.

I have always done business with the future in mind. Now the future is here and I still have clients. Treat your clients with the utmost honesty and it will come back to you. You shall reap what you sow.

Now I have to call Mr. J back and present him an outstanding mortgage offer. I am not going to get rich off this loan, but he will be back again, a third time, sometime down the road. Also, I can be sure that he will continue to give me referrals. I much prefer that.

Think "long term" in everything you do and you will be in this business for the long term.

Posted by Michael and Karen George on 05/30/2007 01:11 PM

Comments (23)

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23 Comments on Thinking in the Long Run

MAY

2007

Honesty is always the best policy and I agree with you referrals are mcuh better than a quick buck.

I agree completely Karen. I find my hardest struggle in pricing a loan is doing the right thing. Making what I feel I deserve, and presenting it to them. I find that the good clients won't question my pricing, because they know I have their best interest in mind.

Another thing I have noticed a lot, is that I will give advice, not to refinance (wait for prepay to expire etc.), and people go ahead and refinance soon after with someone else. In these type of situations, I find myself in a tough situation. Should I do a loan, because they are going to do it anyways, or continue my philosophy of always thinking about what is best for them? How do you handle those types of situations?

You are right on track with that sort of thinking. Treat others as you would like to be treated and the world will be a better place for everyone including you.

James Boyer

Keller Williams Realty

Summit, NJ 07901

Jonathan-- great question. Unfortunately, I don't have an answer. I have also lost loans because I was nice.

You want to know the number one deal I lose? Option ARM loans.

People call me up wanting the 1.99% deal that they have seen advertised with other lenders. When I explain to them how badly the loan stinks, and that I would only recommend it for investment properties, they go elsewhere.

I really don't know what to do in this situation, because, on one hand I want to be honest and on the other, I still want to do the Option ARM if that's really what they want...

So, basically, I don't know how to handle those situations.

I feel the same way with Option Arms. If they want it great, but they have to know what they are getting. If you are interested in one of my similar situations, check out my blog for a post from last week about a woman who bought a house with 100% financing on an option arm. People are out there for blood, and I don't want anything to do with it, unless I feel they are getting the loan that makes sense for them.

Regarding only offering it to people that are using it on investment properties, I think we both could benefit from explaining to borrowers, investment or other, that they can take the savings, and boost up their 401k contributions, invest in stocks and bonds, etc. I think it can be beneficial for both investors and people looking for option arms on primary residences, but they need to use it wisely.

Excellent advice Karen!

I Worked for a Broker one time that coined a phrase that we used in our office all the time. Your story above reminded me of the phrase " Pipeline Thinking"

Karen.. in regards to your clients who asked about Option Arm products... did you ultimately put them into a different product or did they seek financing elsewhere? IMO... I would, I am sure just as you do, try to determine the clients desires and needs. If they won't be convinced of a different product, you will at a minimum have the ability to educate them thoroughly about the promises and pitfalls of option arms and also ensure that it is priced appropriately as not to gouge the clients. I would try to never lose the sale to someone else.

Good for you Karen! :)

I am with you. I would much rather have someone who keeps coming back because they trust me. If you are not trusted in this or any other business, word gets around! It gets around either way and I definitely want the right "word" to get around. :)

Thanks

Terating other as we would want to be treated...you make this point in your post and you are so right!

Good Points. I try to do the same thing in my real estate business.

Long term clients that referr their friends are worth their weight in gold. Almost literally

I had no idea that the commission on mortgage loans was that high. Do I understand that the loan officer gets the whole potato? Surely not. This must be the gross commission paid the company for the deal.

Karen,

I just emailed your post to a lender I'm working with. I'm representing the buyer on purchasing a vacant piece of land and she's working on the financing/construction loan. It's been a long, hard haul. Today we were both wondering why we chose our professions.

Fran

Karen - Kudos to you! and another star!

You will always be a star and will always have business with your attitude and genuineness. I have also lost business by being too nice! Oh well!

I am working on a manual underwrite VA loan..... I will make above average commission.

5% never crossed my mind on a deal..... EVER!!!!!!

MAY

2007

Love your honesty!! Keep up the good work...

JUN

2007

Good point Karen - doing the right thing is the only way to go and the only foundation for a solid long term business. It seems like more real estate agents should be able to help their clients out by being able to point out a crummy Good Faith Estimate (or lack of one) - there are many who would but just don't know enough to do it. It took me five years of being disappointed with lenders before I found two great ones who are rock solid and completely up front with my clients every time - a lot of substandard ones, or just 'OK' ones, get tons of business from agents.

Irene Dorang

JUN

2007

Karen, I agree with you 100%. Take of the customer and they will take care of you. Great Post.

This is exactly the type of thinking that keeps us (mortgage brokers or real estate agents) in business. A nice side effect is that we get to work with nice people because we attract them by our behavior and then they refer their nice friends to us too.

JUL

2007

back when I processed loans I had loan officers who would charge "mabl" pricing on every loan, it was actually a term used in the office..."max allowed by law"

Thanks, Karen. I agree! it shouldn't be about the money but rather about the service we provide. I am of the opinion that we will make more than we ever need if we focus instead on our clients rather than the money. Plus, we'll all sleep better at night! Have a great weekend!

Paul

SEP

2007

I always learn something when I read your posts. I did not know that the commission could be that high either! You did the right thing. You will definitely sleep much better at night knowing that you treated your client ethically.

MAY

Good luck Karen. It's good to think long term. Client for life!

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