How Can We Avoid Another Housing Crisis In The Future?
Step 1: Understand How We Got Here
Whether you call it a "housing crisis" or "mortgage meltdown", have you ever attempted to explain to an un-trusting prospect or client how we got into this mess? Of course there were some "bad apples" who worked in the real estate and/or mortgage industries, but we cannot (or at least "should not") forget the fact that there are many hard working, ethical professionals attempting to pick up the pieces each and every day to turn this economy around. Feel free to share this step-by-step breakdown of how we got into this mess (and more importantly, how we can avoid allowing history to repeat itself moving forward)!
The Technology Boom
Prior to the technological boom, Mortgage Originator's (a.k.a. Loan Officer's) were generally viewed as Trusted Advisors and Lending Consultants. They would aggressively analyze potential borrowers in terms of risk assessment and loss prevention to ensure their company made sensible and low-risk loans. Their ability to conceptualize the specific variables that comprised any given client profile was valued and appreciated.
Enter the age of technology. Consumers quickly became enthralled with the momentum behind technological advances. Acceptance of camera phones, i-Pods, and the Internet swept across mainstream culture and soon gave way to technological reliance & addictions. Desire for instant gratification combined with clever marketing campaigns created a demand for a new way to view commerce as a whole...especially with the ability for businesses to advertise and communicate to consumers online...instantly.
Widespread Effects Throughout The Business Community
CPA's suddenly had to compete with QuickBooks. Financial Planners were made to look expendable with the emergence of companies like e-Trade and Ameritrade. Travel Agents nearly became extinct when companies like Travelocity and Orbitz gave consumers access to the same flight and hotel schedules that were typically only accessible to Travel Professionals.
The Change In Perception Of Mortgage Professionals
Mortgage Originators were perhaps transformed the most. During this age, the image of a Loan Officer evolved from a Trusted Advisor to a Commodity Broker. These once valued professionals were viewed in the same category as Swap Meet Vendors nearly overnight. This conversion gained its initial momentum once consumers were bombarded with aggressive television advertising campaigns from companies like Di-Tech and e-Loan. For example, the motto from Lending Tree, which boasted "when banks compete, you win" quickly permeated the minds of consumers at a time when access to mortgage information was suddenly available...EVERYWHERE!
What Was The Housing Market Doing At This Time?
During this period, home values were appreciating at record paces. Many homeowners were euphoric when they realized they were consistently "earning" $5K-$10K per month in home value appreciation. Mortgage loans which were attached to these homes as collateral began to perform amazingly. Borrower's would literally beg, borrow, and steal to avoid missing a payment on a loan attached to this cash cow of a home!
How Were Mortgage Companies Reacting?
As a result, there became an increased demand for mortgage loans to reach a larger market, because Wall Street Investors considered mortgage backed securities to be a low-risk, high profit investment vehicle. In order to reach a broader range of clientele, the Bank's were forced to ease up on their approval guidelines, (by forgiving credit imperfections, high cash-flow ratios, and low property equity) in order to produce more loans. Exotic loan features like partially fixed interest rates, negative amortization and interest-only payment options prayed on client demands for low payments.
Salespeople Suddenly Outnumbered Mortgage Professionals
As the shift from Trusted Advisor to Commodity Broker took place, Mortgage Companies & Banks began hiring Mortgage Originators based on their "ability to sell" instead of their "knowledge of real estate finance." Many true consultative Mortgage Originator's were soon becoming outperformed by slick salespeople who viewed the refinance boom of the early-mid 2000's as the hottest new product to sell and draw commissions from. These professional salespeople utilized "just get them to sign the line that is dotted" methods, while learning to confuse clients with big words, confusing loan terms, and "ethically challenged" sales tactics. Many of these "professionals" did not even fully understand the overall financial context of the products they were selling, and often did not put the Borrowers best interest in mind when securing their mortgage loans.
The House Of Cards Came Tumbling Down
At one point, the proverbial "house of cards" came tumbling down. Many of us were caught flat-footed when the housing bubble eventually popped. We suddenly had 20/20 hindsight when looking back at the trends we should've seen coming long before they were upon us. Although it is too late to change anything that has already happened, we can (and should) look ahead at how today's actions will affect tomorrows future.
Step 2: Take Action To Avoid This Happening Again
Now more than ever it is imperative to stress the value of working with career Mortgage Professionals who are here to stay. There are a myriad of statistical trends available to quantify the attrition of the mortgage profession. Included in these morbid statistics are the demise of well known Banks, a high number of Mortgage Originator's who have switched careers, and even a number of trends which now threaten the continued existence of the Wholesale Mortgage Broker.
Demand Credentials From Your Mortgage Professional
My humble advice to Borrowers, Real Estate Agents, and Financial Professionals is to carefully consider which Mortgage Originators they are placing their trust in. Among the characteristics to consider when selecting a Mortgage Originator are their:
- Ethics - Quite simply, an ethical Mortgage Originator will always pursue their Client's best interests...no exceptions...EVER.
- Education- Consider working with Mortgage Professionals who go above and beyond the minimum standards of education and training. Examples include (but are not limited to):
- Certified Mortgage Planning Specialists (CMPS)
- Certified Distressed Property Experts (CDPE)
- California Department of Real Estate (DRE) Licensees (both Salespersons & Brokers Licensees)
- Experience - Whether we work as Mortgage Originators or Real Estate Agents, we can all agree that each transaction that we are involved in tends to make us stronger professionals. Consider that you might benefit from the previous experiences of a seasoned Mortgage Originator. Also consider that it might be to your detriment to work with a Mortgage Originator who is learning on the job...at your expense!
- Accountability - Does the Mortgage Originator you are working with have a direct link of accountability back to someone in the transaction? If you are working with a faceless voice behind the phone at a Call Center out of town, are you really making the best decision of who to work with?
- Empathy - Would you go to a Dentist with bad teeth? Would you hire a Personal Trainer who is noticeably out-of-shape? Assuming you answered "no" to these questions, ask yourself why you would consider working with a Mortgage Originator who has never bought a home. Do they understand the stresses of buying a Home? Have they ever felt the pressure of signing a stack of loan documents in front of a Notary? Mortgage Originators who have been a Borrower on their own home purchase tend to possess empathy, which leads to stronger customer service and the ability to intuitively know the concerns of the Borrower and how to quickly address them.
Look Beyond The Familiar Bank & Credit Union Names and Avoid Marketing Gimmicks
In closing, JUST SAY NO to faceless Call Centers and realize that no matter how clever the radio, television, or direct mail commercial looks or sounds, the same programs are available with your local Direct Lender or Wholesale Broker. If you hear of rates, fees, and/or loan programs that sound good on these commercials, I recommend you consult your "local trusted Mortgage Professional" (assuming he/she has the above-referenced professional qualities).
Accountability Is Extremely Important
Do not trust your largest financial endeavor to a faceless salesperson with no accountability to your financial well being. Remember, if the Loan Officer you are working with is solely dependent on "walk-in traffic" or "up-calls" from Call Center marketing promotions, they are not as accountable to you as a Mortgage Professional who is purely reputation-based (and 100% reliant on accountability and reputation).
Do Your Homework Now...Save Headaches Later
If you are a Real Estate Agent, embrace the fact that your Clients trust you! Do not allow your valued Clients to inadvertently sabotage their escrow by being lured into working with the wrong company! To learn more on how to select the best Loan Officer in your area, click the articles below for a detailed breakdown:
How To Choose A Loan Officer (Part 1 of 2)
How To Choose A Loan Officer (Part 2 of 2)
By taking a moment to understand how we got here, we can collectively avoid another housing crisis in the future.
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