Over the past several weeks I have spoken to more than a hundred loan officers about the important role that financial literacy plays in effective mortgage sales. Typically, the conversation arises in the context of benefit selling. I strongly believe that you must be able to position the loan as a financial planning tool, not just another payment. In order to do this mortgage professionals must have a strong understanding of the relationship between mortgage interest and taxation.
I recently posed the following question to a group of seasoned loan officers, “for a w-2 employee earning $60,000 a year what is the number one benefit of owning a home vs. renting?” A few had blank stares, a few said the standard- “you could write off the interest.” I then asked, “o.k., what if you had a guy earning $80,000 a year, who is currently renting a condo for $1,200 a month. Assume that he is going to borrow $300,000 at 6.25% for 30 years. Assume the taxes on his new home are going to be $4,000 per year.
Here’s what I want you to do.
First, calculate the actual difference in payments on an after tax basis between what he is paying in rent and what he would be paying for his mortgage including taxes and homeowners insurance. To make it easy, assume he is in a 25% tax bracket (easy math) and the homeowner’s insurance is $1,000 a year.
Next, without using a calculator estimate the first year’s interest on the loan and the corresponding tax benefit to the borrower.
Here’s where it got a little sticky. Not one person in the room could complete the exercise. Many didn’t even know where to begin. So the next obvious question was, “so what do you say to someone who doesn’t think they can afford to buy a home because they’re concerned that their monthly living expenses may increase by a few hundred bucks?” Half the people in the room didn’t understand the question. This is not uncommon. In many cases it’s not the loan officer’s fault. So often we assume that because a loan officer has been in the business for a few years that he/ she understands these basic financial principles. Even worse, we assume that they are effectively using this knowledge in their day to day customer interactions. In other words we assume that they KNOW how to sell a mortgage. Looking at it from the loan officer’s perspective, they don’t know what they don’t know. Basic human nature is that people are afraid to ask questions out of fear of sounding ignorant.
The net result is most loan officers will resort to using simple catch phrases like, “keep in mind you can write off the interest.” The real problem occurs when the borrower asks them to explain what they mean by that. Or worse, the borrower NEEDS them to explain what they mean by that and the loan officer can’t answer the question. This breeds mistrust on the part of the borrower and a lack of confidence on the part of the loan officer. This situation always ends in a polite, “I’ll let you know.”
The two best “mortgage sales” books I’ve read were not sales books at all. They were “The Millionaire Next Door” and “Rich Dad, Poor Dad.” These books gave me valuable insight into how money works. They gave me the confidence I needed to provide detailed presentations to my customers. They allowed me to sell with real CONVICTION.
The actual books you use are less important than the fact that continuous education and constant improvement are vitally important to the success of every mortgage professional. Whether they have been in the business for 2 days, 2 years or 12 years they can never get too much training.
Many loan officers are feeling fatigued from recent shift in volume. Now is a great time to give them the added motivation and purpose that comes from well designed education programs.
My favorite story is about the professional trainer who is approached by a skeptical business owner. The owner says “the problem I have with training is that eventually it will wear off. The trainer replies,”that’s true. If you don’t do it consistently, it won’t be as effective. Think of it this way, how would people react if you never took a shower because that too will eventually wear off?” Have a great week.
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