Superstar Secrets

There are many secrets to becoming a top producer, including a number of strategic systems and other elements that superstars use to reach the highest levels of origination. The following comments highlight the business secrets from several of the nation’s top producing originators.

“The primary reason I have been able to grow my business over the years has been the laser focus on developing, maintaining, and marketing to my database of closed loan clients. As the market has shifted from Realtors controlling 65 percent of the purchase business, to the present number of 25 percent, I have been able to maintain a high production level because of constant contact with the database. We touch our client database a minimum of 15 times a year through postcards, newsletters, annual reviews and phone calls. This system buys our clients “brain cells” so whenever they have a mortgage need, they will think of us. On average 70 percent of my production will come directly from my closed loan clients. Approximately 15 percent of my database will either personally close a loan with me in any given year, or refer me a closed loan in that year creating an annuity business. If I am marketing to 2,000 people, I should be able to close 300 loans a year by doing nothing but staying in contact with my database.”

David Jaffe
Chase Manhattan Mortgage
Westlake Village, Calif.


“All successful LOs know how to uncover their customer’s goals before giving advice, but the super producer needs to take it a few steps further in order to maximize their referral stream. I call this step determining the customer’s center of influence. I first determine who referred the client, and that provides a context for me. From there I ask about their profession, their affiliations with civic organizations, how long they have lived in the community and other questions to determine the breadth and nature of their influence among others. This helps me identify ‘super referral’ sources. We provide extra value to these folks. It may be referrals back to them, if we are in a position to generate referrals. If not, we make sure that our super referral sources always receive special attention as VIP clients.”

Jeff Lake
American Home Mortgage
Mt. Prospect, Ill.


“It’s hard to name one specific ‘secret’ to define success in the ever-changing mortgage industry. Over the years, the importance of recruiting and teaching individuals who are able to function as a team has become more and more important. Players on my team are all superstars in the positions they fulfill. They are positive thinkers and doers. They are loyal to me and to each individual team member.
“Each team member shares my philosophy of ‘under promising and over delivering’ and they never miss an opportunity to spread this philosophy throughout the Realtor community. I share in the pride the team members experience with the close of every loan, no matter the difficulty or ease involved in assisting our clients with their mortgage needs. I feel very fortunate to have such a group of individuals who work with and beside me.”

Jon D. Volpe
Nova Home Loans
Tucson, Ariz.


“In building a career as a mortgage originator—or in any other career for that matter—the key is to remember the end game. As one builds their business, you have to always keep the final goal in sight. I have always operated under two basic guidelines; one that you are only as good as your last mortgage and secondly that many smaller pieces of pie will add up to more pies. This means treat each borrower as your most important one no matter how small or large the deal is, a satisfied customer is your best referral source and there is no cost to good will. Second, no matter what put your best offer on the table first, even if it means working for less than you would like to. Especially in today’s tighter market with savvy borrowers, the best first offer is generally the one that gets the deal and a slightly lesser fee is much better than no fee at all. To sum it up do what you have to get as many deals as you can and know that they will help to create a foundation that will keep the business coming in the door; good market or bad. The key is to build a base of satisfied clients who will become your ongoing source of business. Remember, our clients either move, trade up, trade down or refi. If you do a great job with them the first time, you are sure to have them as customers for life.”

Melissa Cohn
The Manhattan Mortgage Company
New York, N.Y.


“Unlimited energy, enthusiasm, intense drive and a genuine passion for the mortgage business—these are the ingredients for a superstar loan officer. I have consistently been one of the company’s top producers and ranked among the top loan originators nationwide. So what’s the secret to being a top performer year in and year out? A few superstar tips:

  1. Maintain a Database—I learned this very early on. Start with a program like ACT and keep track of as many parties to a transaction as you can. In a purchase transaction, your contacts should include the buyer and seller as well as both the listing and selling agents. I try and add 150 names to my database each year and take out 150 names each year. If you haven’t heard from someone in the past 24 months, chances are you can delete them from your database.
  2. Direct Marketing—I market at least six times a year to people who know me from my database. My marketing materials have a consistent look and feel; the only thing that changes is the message. By having your name in front of your clients on a consistent basis, you are always kept in the client’s presence. Whether or not they have a need for mortgage services, they will have you in mind when the right time comes.
  3. Saying Thanks—I always send a thank-you gift or note at the close of every transaction. It sounds corny and takes time as well as money, but I believe it is really worth the expense. It helps you stand out from the other loan officers and clients truly appreciate it.
  4. Honesty and Responsibility—I take full responsibility for every part of the mortgage process. Being responsible also means being accessible. My clients all know they can always reach me anytime, weekdays or weekends. At the end of the day, the client remembers you and the how smooth the process was, so it’s important to assume full responsibility. If there’s a problem or an issue, be honest and upfront about it with everyone involved. No one likes surprises in this business.”

Janna Kohl
First Financial
Los Angeles, Calif.


“Clients don’t want a mortgage, they want money. The sooner you realize that your product is money, the easier it is to transition from a salesperson to a Mortgage Planner. A Trusted Advisor, who can monitor the market, builds relationships that create wealth for their clients and take rate out of the equation. A scripted and trained mortgage planner never sells; they teach, coach and assist their clients and referral partners.

This has helped me grow my business in hot and cool markets over the past 20+ years. I am confident that I am the best qualified professional in my market to help my clients manage their mortgage as a financial tool as well as offer market advice. I think the best mortgage professionals push themselves to gain the knowledge and training that helps them feel that they are the most educated and qualified mortgage planner in their market. It isn’t a secret, but most fail to do so.”

Barry Habib
Mortgage Market Guide
Holmdel, N.J.


“I strongly believe in the importance of turning all of your past clients into clients for life. However, many people simply mail or market to their clients for life throughout the year. This is what I call a customer retention strategy. In this market, it is critical to adopt a customer engagement strategy. One of the engaging strategies I have developed for my clients for life is a “Family Day at the Movies.” Each year during the winter holiday season my team buys out a movie theater and invites all of our clients to bring their families to see that year’s winter-themed family movie. Each year, as a team we discuss the movies available, determine a date and make arrangements with a local movie theater. We then mail out an invitation to all of our clients for life, informing them of the event and ask that they RSVP to our office. For our VIP and Raving Fan clients we make personal phone calls inviting them to join us for the movie. Of our database of nearly 1500 clients, we usually fill the event with 400 – 450 people in attendance. After the event, it is essential for everyone on my team to make outbound phone calls to their clients to further engage in that relationship. We have been hosting this event for eight years and have experienced great success in cementing relationships with our past clients. We truly believe in targeting relationships, this is just one of the many strategies we use to continue targeting and building relationships.”

Tom Bass
Targeting Relationships Inc.
Rancho Cucamonga, Calif.


“The basics of making a personal connection with our clients are the veritable foundation for which the entire relationship will be built. These relationships are key to the longevity and fruitfulness of this customer. I truly believe that the stronger the connection I have with the client, the more referrals I am likely to see during the course of our relationship.

During the initial phase of meeting someone new (either in person or over the phone), I look for areas in which I can connect with this person without being gratuitous or over-the-top—what people do we have in common, what interests do we share, where are they from originally, and such. For example, if their Social Security number starts with a ‘0’, I know that they are probably from the East coast. If it starts with a ‘5’ I know that the Northwest is (or was at some point) their home. Every now and then a client’s accent will provide the necessary ice-breaker for me to connect with the person on a level deeper than the standard ‘what interest rate I am able to offer that particular day.’

I truly believe that the more of your personality you are able to inject into the process, the more probable this new ‘prospect’ is likely to become a long-term ‘referring client’. Often times I find ways to weave elements of my personality – for example, my love of classical music – into my conversations with the client. I try to be very intuitive as to the areas in which I feel the client and I are connecting then I exploit this connection to establish long-term rapport.

In a time in our business when we have enough software and outsourcing to never actually have to get out of bed in the morning, I find it refreshing to come back to the basics of success and the prolific impact of a handwritten thank you note.”

Matt Elerding
Chase Home Finance
Vancouver, Wash.


“My mom was a Realtor, so I grew up among them and learned first-hand that it was poor communication from their lenders that frustrated them to no end. I learned that they chose to do business with those loan originators who did a good job of keeping them informed. So, I decided early on to make “Communication the Lubrication in my Mortgage Operation.” I designed my ACTion Marketing system as a step-by-step method to communicate with the listing agent and selling agent from the initiation of my contact with their referred client, at 12 key points during the loan process, followed by an announcement of our loan approval, culminating with a copy of their referred client’s closing survey. I announced my successes on every transaction. This aggressive system of communicating was unique when I began my mortgage practice in 1985 and remains so today. My team and I separate ourselves from our competition every month, by providing exceptional communication at every step of the loan process. As a result, our business is over 90 percent Realtor referred, purchase business. I just finished reading client and Realtor surveys on 46 recent closings. Almost every one of them had a penned notation that mentioned their appreciation for our professional communication.”

Greg Frost
Frost Mortgage Banking Group
Albuquerque, N.M.

Scanners: Image or Text?

Dear Thor,
What is the difference between an image scanner and a text scanner?

An image scanner allows you to scan a document and read it later, but you can’t edit it. On the other hand, if your saved file is a text document, then you can change it. Even more important, you can do a word search. Let’s say you have all your files stored the traditional way. A prior client wants you to pull his note and see if there is a prepayment penalty. If you have your closed loans stored as text documents, then you can do a search for the client’s name and scan his note electronically, instead of going to the storage bin and looking through boxes.

Much the same as a copy machine, the more you are willing to spend, the more speed and flexibility you get. An example of the super high speed is the Kodak i840 that lists for over $50,000. For something mid range, you can get a text scanner for about $800. This would be a commercial rated flatbed scanner, versus the handheld pen style word scanners that sell for about $50. You can also buy software that can convert a saved image file to a text file for $100 to $200 dollars. This software is analogous to speech recognition software that converts voice to text.


Dear Thor,
What is open-source software?

You might think of open-source software as the next generation of freeware. It is free in the sense that not only the software itself, but also the source code that makes the software tick is openly available. This means that not only can you get a free copy of the software, but you can take the existing source code and build on it before passing it on to other users. Because everybody in the world has access to the code and the ability to expand and refine it, even if you’re not a programmer yourself, the software is destined to constantly improve. The software can be downloadable to operate on a computer or it can be an online program.

The open source model is proven to work: it spawned the operating system now called Linux. Another great example of how open-source software works is Wikipedia, the Internet-based encyclopedia. There are rules and procedures to follow, but anyone can add new information to the program. Or, when using the knowledge source, if you see something that is inaccurate or obsolete, you can edit or update the data. Not only does it keep growing, but it keeps getting better. And like open-source software, you’re free to copy and distribute Wikipedia articles if you include a copy of the license.

Much open source software available today is a workable alternative to expensive software. A prime example is the office suite. It has programs very similar to those in Microsoft Office. For instance, Writer is a word processing program and would be a counterpart to Microsoft Word. While they are similar, Writer has one distinct advantage: it can save documents in the Microsoft Word “.doc” format and in a generic format called OpenDocument. Word documents, on the other hand, can be saved only in the “.doc” file format, which might not be readable without a copy of Word. Other open source software programs available are Mozilla Firefox, which is a Web browser like Internet Explorer, and the GNU Image Manipulation Program (GIMP), which can replace Adobe Photoshop.


Dear Thor,
Why does my computer sometimes reboot itself?

If your computer is working normally, there are only two reasons for a reboot. One is when you initiate the reboot. This can be for several reasons. Some software installations require a reboot and part of the install routine will offer an option to reboot. This can be automatic if you have opted for automatic updates from Microsoft.

You might reboot simply because want to refresh your RAM (random access memory) by closing out partially running programs. Sometimes a program design flaw will cause what’s called a “memory leak,” where a program claims some of your computer’s memory for itself and then doesn’t give it back after it’s closed. Rebooting resets your memory, fixing the “leak.” Or, there could be a time when your computer freezes and a reboot is required. If it is so jammed that a normal restart won’t work, try holding down the on/off button.

The second reason for a reboot could be a result of a setting in your Control Panel that will automatically reboot your system any time your computer encounters an error. This is not a default setting and if it is turned on, I would turn it back off. Go to System, then Advanced. In the Startup and Recovery Settings you will see an option for Automatically Restart in the Recovery Settings. If it is checked, try deselecting it.

Superstar of the Month – Preet Kalirai

M.O.M.— How did you get started?
Kalirai—I began as a teller at Security Pacific Bank right after high school. I was there (which became Bank of America) for 9 ½ years, eventually working as assistant manager, underwriter and loan officer. I was recruited by my mentor Sean Safholm to Countrywide.

M.O.M.—What was your initial marketing activity as an originator?
Kalirai—I was working at a small branch and started calling on existing clients. I introduced myself and explained the types of services and products we offered. Of course, some of them needed attention—a refinance or other loan. Once I got an initial customer, the referrals came. I’ve never really made cold calls.

M.O.M.How did you get started with CalPERS?
Kalirai—CalPERS is a financing program designed for members of the California Public Employees Retirement System. CalPERS (offers special interest rate and closing cost advantages. I got involved about four years ago when I got a call from a state employee. I currently handle CalPERS-based loans in California, Oregon, Arizona, Washington, Nevada and Hawaii. This accounts for about 20 percent of my total production.

M.O.M.—How did you market to these clients?
Kalirai—It started with referrals, with one state employee referring another to me. CalPERS has a number of loan officers throughout the state, but they rely on a few of us more than others. Once you close a certain number of loans with them, they put you into their lead program, whereby they will send you leads that come in when state employees call for more information. I’m also listed on the CalPERS Web site, which leads to a number of calls.

I have a billboard in downtown Sacramento, the site of many state government buildings. The billboard has my picture and the CalPERS logo, along with contact information. I’ve had good success with that. In addition, a couple of times a year I send my customer/contact list a flier that highlights the benefits of a CalPERS loan.

Much of the CalPERS business is now referral-based, as one employee tells another about the program. CalPERS monitors the lead to conversion rate very closely, so it’s important that I close as many of these loans as possible.

M.O.M.—What do you recommend to orginators in other markets?
Kalirai—I believe that many markets have something resembling CalPERS. You need to evaluate your state and local programs and get to know the guidelines. Introduce yourself to the contacts and explain why your expertise and customer service approach will benefit employees. Once you get a loan or two from a state or county employee, you should begin seeing a steady stream of referrals. Of course, you can also advertise this specialty on your Web site, fliers and other marketing materials.

M.O.M.—What other marketing have you done?
Kalirai—I’ve had a small ad in Sacramento Magazine, which is aimed at businesses in the area. I actually got more calls from past customers telling me they saw it and asking for help with a loan, than from businesses.

M.O.M.—How do you stay in touch with past customers?
Kalirai—I send something to them almost every month. This includes, thank-you notes, holiday cards, seasonal cards, and tax season postcards. These are simple mailers, but help to ensure that my customers don’t forget me.

M.O.M.—How often do you ask for referrals?
Kalirai—I ask for referrals every time I speak to a customer or other contact. Even during the application process, when I’m explaining the various deadlines and other information, I will say “Please share my name and number with anyone you know who might need my assistance.” This works better than mailing postcards or newsletters.

M.O.M.—Do you have a specific niche market?
Kalirai—In addition to state employees, we also assist Spanish speaking and Indian customers. I speak Punjabi and Hindi and one of my assistants speaks Spanish. Just having one of us use their language makes them more comfortable, even though most of them speak English as well. We also offer the 1003 in Spanish.

M.O.M.—How does your Web site benefit your success?
Kalirai—My Web site notes that I specialize in CalPERS loans. It has links that give my clients the opportunity to fill out an application and fax or e-mail it to us. My site also breaks down a few financing options for our clients. They seem to appreciate the Web site because it gives them a more hands-on approach to the loan transaction. I always inform clients that they can visit my Web site and read more about the process.

M.O.M.—What is key to customer service?
Kalirai—My perspective is that it’s always what’s best for the customer. We strive to have the best customer service experience possible throughout the whole loan process. For those people who do visit the office, we have a very friendly atmosphere so clients feel comfortable. On the phone, we always thank customers for taking the time to talk with us or to gather their documents.

Throughout the process my team is in contact with customers to inform them of their loan status. That way we don’t have clients calling to ask about the status. They always have a good understanding of what’s going on and when they’re going to close.

M.O.M.—Who is on your support team?
Kalirai—I couldn’t do this without them. My two assistants are Craig Clegg and Kameka Grant. They are my right and left hands; responsible for a variety of different areas.

M.O.M.—What process do you have to handle the volume?
Kalirai—It’s fairly simple, but effective. After I first talk to the client, I pass the introductory information to one of my assistants and they complete the application. (I’ll take about 80 percent of the apps.) They pull the credit report and complete the 1003 and give that to me so that I can review it and the loan recommendation with our customer. Then I’ll give it back to one of them to complete the file for submission to our underwriter.

M.O.M.—What do you consider a key characteristic of superstar originators?
Kalirai—You have to take extra steps to impress your customers. I like to make every person feel special. When a client calls me, I still stop what I’m doing and take the application on the spot. I don’t transfer them to assistants or act like I am too busy to talk with them. If I’m driving, I will even pull my car over and take an application on the side of the road. Whatever it takes.

M.O.M.—How do you balance work with your personal life?
Kalirai—During the last few years it was difficult to have a balance. However, lately I have been scheduling more time for my family and personal life. I take more vacations and make sure to spend time watching my children’s activities. Balance is good.

Rookie Superstar – Paul Cargal

Favorite Book:
“How to Master Your Time,” by Brian Tracy

“My first loan couldn’t have been more than $200,000,” recalls Paul Cargal, 26-year-old loan officer/mortgage consultant with Metro Broker’s Financial, Atlanta, Ga., “But completing it was definitely nerve wracking because I wanted to make sure every little thing was done perfectly. I knew my performance would leave an important first impression.” A perfectionist by nature, Cargal sets lofty aspirations and says his main goal for his second year was to increase business by “providing one of the highest levels of service known in the industry.”

His ambition has certainly paid off in his second year, Cargal’s personal loan volume reached $27,000,000 with 210 closed loans. “He is one of our star originators and is very dedicated to his customers and to constantly finding ways to work smarter and help more people get into a home of their own,” remarked Judy Jones, vice president of Metro Brokers Financial.

Growing up in what he calls a “real estate family,” Cargal has always been interested in the industry but admits he wasn’t sure if he would ever make a career out of it. However, after graduating from the University of Georgia with a degree in Business Management, Cargal landed a job as a pricing coordinator in the Secondary Marketing department at Banc Mortgage. The experience was invaluable to Cargal as a new originator and taught him a great deal about different product options and pricing out loans. “I ended up liking the mortgage business so much that I decided I wanted to try to become a loan officer myself,” says Cargal.

The opportunity came when Cargal’s father, a local real estate agent, introduced him to Lloyd Carver of Metro Broker’s Financial, one of the most successful loan officers in his state. The meeting evolved into a fruitful relationship as Cargal trained for eight months as his junior loan officer. “It’s important to have a mentor and I learned a lot from him [Carver],” said Cargal. “He taught me what programs to place borrowers in, how to market myself to agents and lend loans by beating other lender’s prices.”

Of his rookie year Cargal reflects back and says, “There is not one most memorable loan that I can remember in my rookie year. Anytime I can obtain a loan for a buyer who was previously denied a loan by other lenders is memorable. Meeting any buyer’s need for a loan is also memorable.” Today, the breakdown of his business consists of approximately 40 percent new construction, 40 percent re-sales, 15 percent investor and five percent refinances. However, Cargal is quick to mention that he does not market himself to any one group of customers. “My specialty is whatever matches my customer’s portfolio, whether that is an FHA/VA, Jumbo, First-Time Homebuyer, Sub-prime, C/P or investor loan,” he remarked.

Since his training with Carver, Cargal has gone on to originate for three of Metro Broker’s offices in Georgia—located in the cities of Buckhead, Stockbridge and Peachtree City. “It was difficult at first to manage my time between all three offices,” admits Cargal, “since I obviously can’t be in all three locations at once. But once I got all of the agents on a routine, letting them know what days I would be in each office and making myself readily available on the phone, it became a lot easier.”

Along with spreading his time evenly between three offices throughout his typical 50-hour work week, Cargal also helped his business grow by implementing a few of his own marketing strategies, the first of which includes speaking in front of agent caravan meetings. “I’ll speak about different loan programs at these events,” said Cargal. At the meetings Cargal also hands out V.I.P. gift certificates for a free appraisal or to Home Depot and says he garners a good response from this. Besides public speaking, Cargal also kept his name visible throughout his second year as an originator by sending out fliers for new listings/re-sales and calling agents/builders to see if there was anything he could do for them. “I currently also send out annual mailers to my past clients and letters with pre-qualification forms attached to them. Out of 200 solicitations I receive anywhere from two to three responses.”  

Cargal credits his success to hard work, persistence, having a great processor and assistant and most importantly, the agents that put their trust in Cargal by giving him the opportunity to do business with them. He leaves the following advice for new originators. “Probably the most important thing I learned is better methods for moving loans through the loan process, for faster closings without delays,” commented Cargal. “These methods include quickly returning calls and getting pre-approvals as fast as possible to ensure nothing goes wrong.”

The EMortgage Transition

Major effort coordination will soon result in eMortgage transactions as the industry’s normal operating process. An eMortgage is done with as little paper as possible, ideally none at all. This requires major technology coordination, but many changes have already been put in place. The eMortgage is a growing and viable loan transaction method. Fannie Mae announced purchasing its 1,000th eMortgage.

When you can originate a loan, process a loan, underwrite a loan, and do all the other needed steps to market, record, ship, insure and store mortgage instruments without transferring paper from one place to another, the eMortgage will be upon you. Many hundreds have already been done. The eMortgage is no longer hung up on “if” questions. The only remaining question is “when?”

You can find critical technical information on the Internet at The eMortgage technical specifications and implementation guides provide a framework for implementing paperless mortgages with electronic signatures.  They provide links to all of the documents and work products of the MISMO eMortgage Workgroup, including:

  • SMART Doc(TM) Implementation Guide
  • SMART Doc(TM) Specification, DTDs and supporting information
  • ePackaging DTD, Specification and Implementation Guide
  • eMessaging DTD and Implementation Guide
  • Background information on eRecording, eMortgage Vaulting and the National eNote Registry concept (now the MERS eRegistry).

You may not be the technical wizard of your company, but you still need to read the eMortgage Guide final document for version 2.0. In fact, if you intend to remain in the mortgage origination business, you must read this 96 page document. It is available free as a PDF download from the above site. What will you learn?

You will discover what an eMortgage really is. You will learn what is involved with this process and will discover the benefits and cost savings you should expect to flow from the eMortgage process, all important points. As the eMortgage becomes the industry standard, you and your company must adapt to these changes or you will need to find a new career. How close is this transition? Best estimate is more than a few months, but not many more years. Adapting your technology, your work flow, staffing requirements and all the rest of the changes needed for an eMortgage environment will require time. It is not too late to do the needed planning, but it is getting late to start your planning if you are still just doing business as usual.

Page 7 of the eMortgage Guide identifies many of the expected benefits that will flow from using this technology. These include significant reductions in cycle time for all processes, increased data integrity, cost savings for system integration and increased value of eMortgage assets. Opportunities exist in many areas such as compliance, disclosure, closing, delivery, recording and servicing.

The current legal framework surrounding mortgage transactions must also evolve, and already has in many areas including passage of the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN). The details of these laws and the requirements to be met therein require review by your legal staff. However, understanding and correctly implementing these laws with your eMortgage process is absolutely critical.

Another important area is notarization of documents. While the foregoing acts each address this issue, the laws of each state currently set the regulations for notarization. These will need to be modified to enable electronic notary services. Many states are already working on the needed changes; however, enabling legislation will require some time to complete. You need to determine the situation in each state where you conduct business. Additional information can be found through state and national notary associations.

eRecording is another area with conflicting positions between federal and state laws. At present, you need to clarify the rules in your county and state as to whether eDocuments are eligible for recording. This is another area of change as the various states and counties move to enact appropriate legal support for the process. Legislation in the form of the Uniform Real Property Electronic Recording Act (URPERA), has already been adopted by some states, and provides for recording of electronic documents as originals and eliminates the need for a physical or visual image of the notary’s seal.

The American Land Title Association (ALTA) has a 16-page draft of a new loan policy available. The draft contains a number of references to electronic loan obligations designed to emphasize coverage that already exists in the current ALTA policy. Obviously title insurance is a critical part of every mortgage transaction. Therefore, you must become familiar with these requirements to ensure you will have the protection you need for each eLoan.

Consumer disclosure delivery via electronic means is also subject to regulation. You must obtain prior consumer consent to receive such disclosures. Also, some notices are not eligible for electronic delivery such as any notice of acceleration, repossession, foreclosure, eviction or right to cure relating to a credit contract secured by the consumer’s primary residence. The general laws concerning disclosure requirements are included with Regulation B and Regulation Z and in advisory letters from the Comptroller of the Currency. You will find more details beginning on page 17 of the eMortgage Guide.

Once clear of the legal hurdle sections, you get to the structure concepts of eMortgages. Standards for SMART™ documents are important to understand; not the technical aspects for managers and production staff, but the concepts. SMART is the acronym for Securable, Manageable, Archivable, Retrievable and Transferable electronic documents. In general, the document contains information describing the document, a visual representation of the document, data embedded in the document, transparent linking of the data and visual representation, electronic signatures in the document, tamper-evident security in the document and an audit trail of changes in the document. These are features not available with paper documents as there is no way to know or discover skillful changes to paper documents. In this instance, a SMART document provides superior security for each transaction.

The eMortgage guide starts with a high level overview of the general process. It then provides greater detail about specific critical topics necessary with the eMortgage concept, such as eDocs, eSignatures, ePackages, eRegistry, eDoc Delivery and the Electronic Vault. Section six reviews information concerning eDisclosure, eCredit Reports, eAppraisal and much more.

Like it or not, the eMortgage process is descending upon you. Your choice is to be prepared to adapt to these changes or to be crushed by them. What is absolutely certain is that the business is changing again. The benefits in time saved, superior service, superior transaction security, fraud defense and general efficiencies will drive these changes. Change is not new but constant. Be ready for it or join the dinosaurs.

By Bruce Forge

All I Want For Christmas

The Wish List Of Lending Professionals

‘Tis the season to be wary. It’s easy this time of year for things to fall through the cracks. While true that some things do slow down a bit in December, it is also true that the month-end is upon you faster than you can say, “Can I return this if she/he doesn’t like it?” It’s a time to celebrate the season with family and friends, but it’s also the time we take our collective eye off the ball until after the New Year.

So this year, when you ponder deeply about the things you would like to have for Christmas, consider some things that might not normally appear on your list. Sure, you probably want a zippier car and a sexier physique, but we at M.O.M. can only do so much. Something we can do is think a little more globally and strategically than you might be thinking at this time of the year, with all the distractions you are dealing with for the holidays. Here are five things that are probably on your wish list, even if you haven’t had a lot of time to think of them:

  • Have another big refinance market.
  • Be more efficient and reduce expenses.
  • Find profitable new products.
  • Have better relationships with lenders.
  • Attract and retain top talent.

These are all good things, but how realistic are they? Looking at them individually, we have good news to report – they are all achievable, if to varying degrees. Better yet, none of them will break your Christmas Club account (if anyone remembers those.)

Have another big refinance market. It may be on the way, at least to an extent. Projected adjustments represent as much as 40 percent in payment increases, which economists have cited as a chief indicator of an economic slowdown ahead. Consumers can’t spend what they are paying lenders to keep their first mortgages current. But it’s about the bond market, after all, and the bond market has been kind, lowering the yield on the 10-year Treasuries, in turn reducing the 30-year fixed-rates more than a half a point since summer. And a number of experts feel that we haven’t seen the bottom of the market yet. Back in September, the MBA saw an almost 10 percent increase in refinances and it’s a trend that should continue.

Jim Jubak, senior markets editor for MSN Money, said on, “All this means that 2017 could be a very different year than many of us— myself included—were expecting just a few months ago. Consumer spending could well be stronger than expected, due to lower interest rates and lower gas and oil prices. The economy as a whole could suffer less of a drag from a slowing housing market thanks to a wave of mortgage refinancings that prevent the housing correction from turning into a bust.”

This, of course, means good things for the mortgage origination sector. Things might be getting a lot busier in the new year, bringing tidings of comfort, joy and new opportunities just in time for Christmas.

Be more efficient and reduce expenses. If the business does in fact take off again for the new year, you’ll want to find ways to do more business for less. Fortunately, there are a number of folks out there who want to help you do just that. Among them are net branch companies who want you to join their networks in order to take advantage of economies of scale and enjoy greater income. At the same time, many of them will take some of the processing and technology burden off your shoulders in an effort to get more loans funded with less effort on your part.

This is a hot topic at industry meetings and one you will want to explore fully. Each branch network has strengths, and a number of them have weaknesses to evaluate as you consider them. The best due diligence you can perform is to talk to some of the branch managers personally, as they were formerly in your size twelves. Regardless of all the hype and representations made by net branch companies, the single most important indicator of their true nature are the responses you will glean from talking to people who have actually made the leap. If a network is reluctant to give you names and numbers, there is probably a reason. Before you ask if there is a “magic bullet” study that compares the pros and cons of all the branch networking opportunities out there, it is not making itself known. So do a good amount of Googling, visit the websites and most importantly, ask questions of branch managers.

Technology that can help you become more efficient is rapidly advancing as well. Hottest among these are paperless processing systems that are catching on with lenders. These advances are up there with the original LOS software offerings that have meant so much to originators over the last 10-15 years, easing the pain of repetitive document creation.

Paperless systems allow you to process loans on your office PC’s instead of using paper files, and the best among them make getting loans to lenders as simple as using email. Some of them also allow multiple people to view loans at the same time via the Internet, meaning that loan officers in the field can check status and workflow, and respond to customers immediately, without playing phone tag with the office. The office people can do the same with lenders without phone calls, a major time saver for origination offices and lenders alike. They are typically low in per loan cost and enable processors to handle more loans in the same amount of time required to process fewer hard-copy files.

Find profitable new products. The days of the 125 percent loan may be over, and the payment option ARMs may have gone out of fashion, but rest assured, there will be new products coming on the scene. Among these are the small commercial loans you may have been hearing about; they represent a significant income opportunity, though they require a somewhat different skill set among originators.

Small commercial loans are generally considered to run from $500,000 to $2,000,000. While this doesn’t get you much in markets like New York or California, they are still meaningful amounts in many parts of the country. The benefits of this market can be considerable, with several compelling reasons to get into small balance commercial lending. As Jeff Lucas, sales director of Silver Hill Financial points out, “First, there is considerably less competition for these borrowers. Additionally, the revenue opportunity is significant, with many originators earning two to four points. Further, you will enhance your perceived value to your customers when they learn that you offer both residential and commercial loans.” This sector is not without its learning curve. Jeff explains, “While these commercial loans require some additional knowledge, they are not difficult. Certainly, the appraisal differs from residential as do some other aspects.” He quickly adds, “However, learning the difference is not unlike learning non-prime, FHA, or other niche programs. Thousands of conforming originators have made the transition.”

Alt-A lending, once considered a specialty, has become mainstream. They are different borrower types from traditional refinance or purchase customers, and the niche requires some research and understanding. Still, many originators are finding Alt-A an important new direction toward rounding out their product offerings, allowing them to serve a wider base of customers. Big wholesalers like Argent have recently moved into the Alt-A arena, bringing a new level of competitive service to the sector. Sam Marzouk, Argent’s president illustrates this with, “Brokers receive an answer on their loan requests in 24 hours, or our fee is cut in half.” If you’re not doing Alt-A currently, you probably will be in the new year, and you may be looking at its cousins, Alt-A minus and Alt-B.

Have better relationships with lenders. This is probably the easiest thing to accomplish. Lenders understand your requirement for quick turnaround time and limited loan conditions. What they don’t understand is why so many brokers are less mindful of relationships over the long haul.

Industry leaders like Don Henig, president of American Brokers Conduit in Melville, New York, are eager to help create a lender/broker partnership with training and marketing assistance. “There are many ways to build relationships with brokers, but we believe at our core that we must help the broker build their business,” he says. His and other like-minded companies are cognizant that strong working relationships are built over time, and they are willing to invest in that.

Lenders are unanimous when talking about things brokers can avoid doing that harm their relationships. They don’t like spending time getting loans approved just to lose them to another company that responded 15 minutes earlier, they don’t like getting loans that go into EPD (early payment default), they don’t like having recent fundings churned and they don’t like fraud. All of these are easy to avoid, but a few of them tend to be “baked in” at some origination shops, such as small frauds—like pressuring appraisers to pad a value or switching borrowers into stated income programs because their W-2 came up a bit short. They may win the battle by getting a particular loan funded somewhere, but they don’t do much to advance the war. Greg Frost put it well when he said, “There is no free lunch. Our loan rates and costs will rise proportionately with the lost revenue of our lenders.”

Attract and retain top talent. Attracting top talent is a lot easier than keeping it. For promising newcomers, training and income opportunities float their boats, along with advancement potential. As they fulfill their potential, particularly among LO’s, they tend to be hired away, or at least prospected by other companies. According to Rainmaker Thinking, a management consulting think tank, the key to keeping people is good management. If a healthy, challenging and rewarding environment is created, people tend to stay. If not, they are more easily hired away by your competition. Rainmaker believes that most people are under-managed, not over-managed, which comes as a surprise to many. Companies that take five proactive steps in managing their people have the most success, they say:

  1. Provide clear performance standards and procedures;
  2. Make sure employees understand what they are accountable for;
  3. Monitor their work so you can evaluate them properly;
  4. Provide clear feedback on how they’re doing and on fixing problems;
  5. Distribute rewards, praise and detriments fairly.

These seem pretty common sense, but research has shown that companies of all sizes tend to lose sight of these simple steps, causing in-office politics and the loss of valuable team members who become dissatisfied.

A major satisfier for employees is training–making them better at what they do, which helps set up their future positions and advancement. M.O.M. comes to the rescue here with its seminar series, featuring some of the brightest minds in the business. Speakers have real-world, practical experience and share their insights at day-long seminars held all over the country. Seminars like these are extremely powerful tools to help your people become more successful and retain them.

As you celebrate the season this year, let visions of new opportunities dance through your head along with the sugarplums and other holiday goodies. There are pretty good chances for your wish list, and there may be other delectables on the horizon as well, such as federal preemptions and new, interesting loan instruments.

As always, M.O.M. will bring them to you as they develop, delivered to your mailbox more easily than St. Nick ever found his way down a chimney. For now, best wishes for a memorable holiday season, and “to all a good-night.”

By James Hennessy

Rookie Superstar – Ginny Phillips

Favorite Quote
“I think I can, I think I can…” The Little Engine That Could

Advice to New Originators
“Book Yourself Solid,” Michael Port

With her husband already in the loan origination business, Ginny Phillips carefully weighed the industry’s pros and cons before leaving her prior post as director of research and communications with Langley Federal Credit Union in Virginia, where she was responsible for writing newsletter articles and designing marketing campaigns, as well as researching the various customer and program products. As Phillips commented, “My previous experience at Langley has been a big advantage. It has given me the ability to look at my production as a business and market it based on what differentiates me from other lenders. My last job focused on how to get customers to purchase new products, deepening their banking relationship and therefore making them more profitable.” Before stepping into origination, her husband’s boss at BF Saul Mortgage granted her an interview, openly discussing both the pluses and minuses of the business. Even though he ended up offering Phillips a job, it took her an additional six months before she was ready to “jump into the world of 100 percent commissions.”

After BF Saul Mortgage’s three-week intense instruction program followed by one-on-one training with a senior loan officer, which she remembers as the best part of her preparation, Phillips was still a little nervous embarking on her new career. “My first loan was a $60,000 condo and I fretted from contract to closing,” she said. “I’d been working on marketing to a few condo associations and this one was my first call back.”

However, her training coupled with hard work and a steadfast attitude proved to be a successful combination, helping Phillips, 33, to close 82 loans. In 2005 she began to implement new ways to generate business. “Every loan my rookie year was like turning on the light for the first time,” she said. “Each had its own twists and turns. Some were more difficult than others, however I learned something from each deal—what to do and what not to do in certain situations. It took a long time for me to feel confident in my ability to solve problems. Having the experience under your belt is a powerful tool when it comes to problem solving and I’ve learned a lot of creative ways to make deals work.”

Early on, Phillips decided to focus the majority of her efforts on real estate agents. “In our area, real estate agents have a tremendous amount of influence over where their buyer shops for financing,” remarked Phillips. “After identifying what I felt differentiated my company from the competition, I simply picked up the phone and started calling agents for a 10 minute face-to-face. After the meeting, I would always follow up by e-mail, then by phone and finally by mail. If I hadn’t heard from the agent within that time period, I gave them another call and asked them to lunch—repeating the process. But the one thing I think is paramount to success in this business is returning phone calls. It sounds pretty basic; however that was the number one complaint from agents in reference to other companies.” Further marketing efforts during Phillips’ first year included developing a campaign geared towards a few condominium associations in her community—sending mailers and making extra phone calls.

She also admits that being surrounded by mentors has also greatly impacted her success. “My husband William has been very supportive of the hours, phone calls and juggling and care of our daughter Jordan,” she said. “In the beginning I worked a lot. Now I have a little more control of my time. I would say that I work nine-hour days Monday through Friday. I enjoy coming in early to organize my day before the phone begins to ring.”

Another mentor, Jim Fiocca, assistant vice president and fellow loan officer has also proven to be an invaluable resource for Phillips’ trickier deals. “He took a lot of time to answer countless questions and assist in finding solutions to obstacles,” said Phillips. “And Tim Blowe, the vice president/branch manger has also been great at giving me encouragement.”

The camaraderie and trust of her support staff—in-house processor, underwriter and closer has also helped Phillips gain success. “Our office is unique in that we really support each other,” she commented. “In fact, I just made our company’s Rookie of the Year and Chairman’s club and my processor and underwriter are heading up to Maryland to attend the awards banquet to cheer me on.”

The overall breakdown of her business is 98 percent purchase units and two percent refinances; Phillips says she enjoys working with VA buyers the most. “We are surrounded by every branch of the military, which I’ve found is a truly loyal and tight-knit customer base,” she said.

Having surpassing her end-of-year goal by more than $11 million dollars, Phillips says the biggest lesson she learned was that she has the power to set expectations, both of the buyer and the agent involved. “Expectations can make or break you,” she said. “I’ve also learned that internal customer service can get you as far, if not farther, than external customer service. In other words, value those that support you. They are your competitive advantage, treat them as such.”

Phillips leaves the following advice for new originators, “Continuously follow-up with agents and past clients. Keeping my name in front of those who can positively impact my business has been priceless. The secret to my success has definitely been self-motivation, fantastic support and the drive to succeed.”

Superstar of the Month – Mark Taylor

M.O.M.— How did you get started in the lending business?

Taylor—After college in Southampton, England, I worked as a business consultant, advising companies on management, marketing and related issues. I came to the United States in 1992 on behalf of a client. A friend said he thought I would be good as an originator and in 1996 I went to work for PNC Bank in Scottsdale. I proved I could do the job, but didn’t feel there was enough product at the time, so I went to work for a brokerage. I eventually opened my own firm, but it grew to the point where I was spending too much time managing and not enough producing. I joined Security Mortgage in 2002.

M.O.M.—What was your first marketing activity?

Taylor—I called on Realtors, same as today. The key was making a point to ask them what they wanted. The responses were similar—they want docs to title early, want you to be available, ask that you do what you promise, and take care of their client. I guaranteed I would do all of that. I got my first deals based on my commitment and the business grew.

M.O.M.—How did your Realtor business evolve?

Taylor— I’ve developed a number of other strategies to benefit Realtors. For instance, every week I prepare a flier on loan program that is distributed to approximately 5,000 real estate agents throughout the valley. I determine the topic, we have it designed and printed, and a service delivers it for distribution to agents’ mailboxes.

I also send agents weekly e-mails that highlight new loan programs, which helps demonstrate that I’m the “go to” guy. This has been very successful; we recently got 19 new loans within two weeks of sending an announcement regarding a specific loan program (2/1 buydown). In addition, we send them e-mail updates at every stage of the loan process.

I also started helping Realtors refine their databases, to show how their customers could move up in properties through various ways (such as 401k analysis). This often involves me talking to their clients about options, which ultimately drives more business to agents’ pipelines.

I’ve held classes for agents on how to use Palm Pilots and Blackberries; generally how to stay abreast of technology. All of this is non-traditional marketing aimed at staying in front of agents.

We always try to provide agents with a high level of service. We continually ask what is being done (or not done) to help the Realtor. For instance, if they have to call us for an update on an appraisal or closing, we’re not doing our job.

M.O.M.—Any other advice regarding marketing to Realtors?

Taylor—I’ve learned the importance of not creating a reputation for only doing the tough loans. I recently had a conversation with a regular Realtor client who said that he typically sends me the tough deals. I asked if he was sending me the “vanilla” loans as well and he responded that “anyone can do those.” It made me realize that I might have positioned myself too much as a specialist and as a result I’m not getting all of this (and possibly other) agent’s deals. I’m planning to change my focus slightly so that they see I’m good at both the basic as well as the more challenging loans.

M.O.M.—What about advertising?

Taylor—I’ve tried lots of different types of advertising, from Yellow Pages to high quality city magazines and others. I’ve concluded that advertising doesn’t work (for me). You spend a lot of money on an ad and get someone interested in your service and then their Realtor often convinces the borrower to go with their originator. I don’t believe the ultimate response justifies the cost.

M.O.M—How do you stay in contact with past customers?

Taylor—Twenty percent of my business is generated from past customers. After meeting with a client, we send them a thank-you card and a testimonial from a current client. This usually stops the new customer from rate shopping. This is probably my most effective marketing technique.

Upon closing, we give new customers a book that contains a variety of value-added material, including copies of the application, credit and title reports; along with a home repair manual and postcards (with photos of their new house) that they can send to family and friends.

Past customers receive two mailers a month—a postcard and a newsletter. The postcards are often humorous and are sent on such non-traditional holidays as Ground Hog Day and St. Patrick’s Day. The newsletter is a two-sided legal paper format that highlights mortgage news, recipes and other helpful information. We get a great response from these items.

M.O.M.—Do you have a specific niche market?

Taylor—The main one would be corporations, including relocating employees. Our Workplace Mortgage Program starts when we survey new customers regarding their place of employment. We will send a survey to the benefits manager explaining that we did a good job with one of their employee’s loans and try to set an appointment. When we meet, we’ll show the support materials we can provide, such as posters for their lunchroom and payroll stuffers regarding refinancing and purchasing discounts. When a new employee moves into the area we’ll send them a welcome e-mail to introduce our service and that of our Realtor partner for that client.

M.O.M.—Any other unique marketing?

Taylor—We also have a “welcome to the neighborhood” party for new customers. During the transaction we send postcards to their neighbors, letting them know that someone bought a house nearby. The next postcard informs them that our customer has moved in and that we will host a welcome party for their new neighbors. We mention that we can provide them with comparable analyses and other services. The clients like this and it also gives the Realtors a chance to meet everyone.

Of course, one of the benefits of this party is that we obtain the customer’s address book so that we can mail the invites and send them future updates. For instance, we may send their friend in Minnesota a card that encourages them to buy a second home in our area.

M.O.M.—Do you develop an annual marketing plan?

Taylor—I develop an annual plan and review it on a quarterly basis to see how I can be more effective with specific messages and strategies. Then every six months I evaluate where the business has come from and make other adjustments. By end of the year I’ve reviewed every client/business source, which helps us fine tune the plan for the next year.

M.O.M.—How did you decide to incorporate your sons in marketing materials?

Taylor—Including my boys in marketing fliers and other material helps show that I’m a family man. It emphasizes that there will be times when I’m with my family and not able to take weekend appointments, for example.

M.O.M.—Who is on your support team?

Taylor—I certainly couldn’t do this without the assistance of Donna Rinaldi, Realtor liaison and Ryan McDonough, processor. They make me the success I am today. They are passionate about what they do and help to make our team successful. I’ve learned that a key to an originator hiring an assistant is having a system, knowing what you want them to do.

M.O.M.—What process do you have to handle the volume?

Taylor—Before I talk to the client, Donna has already taken a complete phone application and we’ve had the credit pulled. We’ll run DU/LP as soon as possible. I’ll then meet with the customer to review the application and the overall loan strategy.

Our goal is to have them come in with just a pay stub and proof of funds to close. The time I spend with them is to build rapport, rather than take an hour to do the loan application.

M.O.M.—What do you do to make the customer welcome?

Taylor—Donna calls customers to find out what beverage they prefer, which is waiting when they arrive at our office. Our reception area has a board with their name on it. These steps help set the tone and make them comfortable. A relaxed atmosphere helps eliminate the anxiety they may be feeling.

M.O.M.—What do you consider key characteristics of superstar originators?

Taylor—I believe that top producers generally have a higher learning skill set than other originators. They have a better grasp of what to ask customers, and make a point to listen to what the customer isn’t saying as well. Being able to see things from the client’s perspective is critical.

It’s also important to be associated with a supportive company that allows the originator’s entrepreneurial skills to develop. Without the infrastructure we have here, I wouldn’t be able to do the volume. My company was founded by and for originators.

M.O.M.—What is your usual work routine?

Taylor—As soon as I’m up I’m working. For example, I’ll check my Blackberry and then return phone calls on my way into work. I may talk with or leave messages for five customers I had taken applications the prior day, or follow-up with agents. I’m starting the day on a positive note. Then I arrive at the office ready to meet with clients.

One thing that I emphasize is close contact with Realtors and others regarding appointments. For example, if I’m meeting with a customer and running late for an appointment with a Realtor, I’ll text message Donna or Ryan who will immediately call the agent to advise that I’ll be there (or return the call) within 15 minutes or a half-hour. Realtors love this kind of response. We make a point to never say I’m busy, which no one likes to hear.

M.O.M.—How do you balance work with your personal life?

Taylor—When I started I was working way too many hours, but soon learned to make the adjustments. Of course, balancing your work with personal life can be a challenge. I let clients know that I have children. I don’t work after 6 p.m. and generally don’t work on the weekends. I try to take four vacations a year, and I spend time with family on weekends and other occasions. One of the best things about a support team is having them eliminate the minutiae when you’re on vacation. For example, if I get a call while on vacation, I know that it’s important (about structuring a deal).

Living in Interesting Times For Subprime

“May you live in interesting times.”
–Originally attributed to an ancient Chinese curse

In 1966, Bobby Kennedy made a speech in South Africa in which he quoted the famous line about interesting times, attributing it to an ancient Chinese curse. Chinese scholars have been unable to find its source in their culture, and think it may have origins in either America or England. Regardless of its source, it is apt both as a blessing and as a curse. The “interesting times” of recent years has enriched lenders, brokers and everyone else along the value chain of mortgage origination. But the times are interesting today for a less happy reason: the subprime party is over and it is time for someone to pay the bill.

It’s all about growing up. When you are young and irresponsible, it’s not surprising when you do things that might embarrass a more grown up person—unless of course you happen to be in Las Vegas, where what happens there, stays there. The subprime industry has been on a bit of a bender over the last few years, and Wall Street is playing a parental role in sobering things up. To illustrate just how interesting the times have become, consider these sound bites from single story in the Mortgage Ledger:

  • Investment banks are routinely incurring losses on subprime and low-documentation loans, resulting in unprecedented numbers of loan repurchases by lenders.
  • Lenders are having to restructure their loss reserve strategies to allow for repurchases on problem loans, sapping profits. NetBank added $13.2 million to its loss provision expense in a single quarter. Fremont General Corp. repurchased $238.4 million during the second quarter of 2006, more than twice the level of repurchases in the previous quarter.
  • H&R Block added $11.6 million to its reserves, based on experience with buybacks caused by early payment defaults. A related story cited an H&R Block press release stating that it expected to “record a $102.1 million provision for losses in the current quarter related to its subsidiary Option One” to reflect an increase in loan repurchases caused by early payment delinquencies.

It’s not just Wall Street noticing an ugly trend in the subprime world. The New York Times, citing an MBA report, noted in September that, “The rate of subprime ARMs — representing lending to people with poor credit histories — that were entering foreclosure rose to 2.01 percent, the highest since the fourth quarter of 2003, the report showed.” Growing pains for subprime, or death throes? Clearly the capital markets are becoming fed up with the noise from the party downstairs, and have decided it’s time for the market to quiet down a bit.

As a point of order, the term “subprime” really isn’t applicable any more, as the segment no longer deals solely with below average credits. Alt-A and Alt-B are in the mix, along with stated and other low-doc programs that aren’t credit score-dependent. Things became fast and furious there for a while, but thankfully we never got to the ultimate program an industry wag predicted would be upon us: the “stated FICO” loan. Think of the market segment not as subprime, but as nonprime, since Wall Street tends to look at it that way.

Industry experts are concerned. Sam Marzouk, CEO of Argent Mortgage, believes that the current environment is a natural evolution of an industry fueled by competition. “What we’ve seen in the last few months is lenders adopting various strategies to address challenging market conditions,” he says. “But the changes in the market go beyond current market conditions. The non-prime market is fundamentally changing—it is maturing.” A good word, maturing. And it is happening at a good time. “As the market continues to mature and margins become thinner,” he continues, “it is the low-cost, high-quality producer that will be successful. Companies that are able to use technology and other innovations to drive efficiency and service are going to be the winners in the new, more mature nonprime market.”

Look for lenders to offer a variety of new ways of doing business involving new technologies—not overly-aggressive loan programs that end up being of no good to anyone, including borrowers. Among these technologies are document management systems and other ways to reduce paper handling in the process, coupled with automated workflow, Internet portals and continuing advancements in automated decisioning capabilities.

Many industry leaders believe the core problem is in early payment defaults, often but not always an indication of borrower fraud. Howard Wegman, CEO of CreveCor Mortgage in St. Louis, Mo., notes, “Previous to the last six months, investors might find one or two EPD loans (in a pool) to push back to the lender, but today we see 10 to 15 at a time. This type of strain on the capital markets will eliminate a lot of mid-level producers.”

Debbie Rosen, immediate past-president of the National Home Equity Mortgage Association (NHEMA) and one of the nonprime industry’s best-known executives believes part of the problem is a result of lenders trying to accommodate marginal deals. “Common sense tells you that repurchases would not be an issue if loans were underwritten in perfect alignment with lender guidelines,” she observes. “I believe that in a strong market, lenders may think that volume covers a few mistakes and might tend to overlook some of what might be considered ‘minutiae.’ When markets change and delinquency, fraud and credit risk increase, every loan is scrutinized more closely, thus loans that may have sold and survived in pools are now being kicked to the curb.” She feels that the best way to avoid the buyback environment that has cost big mortgage banks hundreds of millions of dollars is for lenders to make good guidelines and use them. “We are in an environment where loans have to be perfect,” she explains. “The critical issue is fully documenting your underwriting guidelines. If your underwriting guidelines claim you only make loans up to 95 percent LTV, then you cannot make a 96 percent LTV loan, there is no wiggle room. And make certain you have a process to ensure that appraisals are sound—don’t cut corners on the appraisal. At the end of the day the driver behind a nonprime loan is (the property’s) value.”

So brokers can expect to see less flexibility in the more mature environment when it comes to accommodations and exception handling. Jim Buchanan, Wells Fargo’s national sales manager for its Wholesale Alternative Lending Division, echoes that expectation. “We adjust credit criteria as needed to balance risk, responsible lending and our desire to be competitive. Risk management and responsible lending rule at Wells and we all agree on that. If Lender “X” wants to walk over the edge, we’re not going to be holding their hand.”

Are we in a “flight to quality” in the nonprime space? “I certainly hope so,” says Buchanan. “We want to keep our AAA from Moody’s and our AA+ from Standard and Poor’s.” Rosen responds to that question with, “Absolutely, but that does not mean that credit-impaired customers with temporary problems are out of luck. It means that documentation is everything.” The market has been moving away from documentation for years, offering “stated everything,” and originators have certainly used all the tools with which lenders have provided them. Expect many of those tools to disappear from the mainstream lenders, and to become far more expensive from the boutique shops that will continue to support them. Given the rising delinquencies and early payment default problems, you certainly can’t blame the lending community for backing away from those loan types. Brokers have jokingly referred to stated incomes as “liar loans” since their inception. That nickname appears more apt now than ever before, as more of them go delinquent soon after closing.

Having said that, it should be noted that there are still plenty of creative programs available out there, including Alt-B, sometimes referred to as “Alt-A minus.” It is an illustration of how Alt-A lending is inching closer to a classically subprime product, but with several notable differences. “The Alt-A product is less flexible than nonprime,” says Wells’ Buchanan. “We grant virtually no exceptions in Alt-A, as opposed to nonprime, where we are more likely to consider compensating factors.” He adds, significantly, “The capital markets drive that.” Ultimately, Wall Street drives everything, and in more ways than one, as we will see. Regarding the Alt-B product, Buchanan describes the category as covering FICO’s 600 or 620 through 660 or 680, but with stiffer guidelines than nonprime. “Our Alt-A minus program sits between nonprime and Alt-A prime,” he says. “It’s there to capture a slice of market that we might miss if we only offered nonprime and Alt-A, and gives us more flexibility in rate and credit criteria.”

Argent made that move last summer, announcing its Alt-A program at the NAMB conference in Philadelphia, feeling the need to expand beyond the dimensions of nonprime alone. As Marzouk observes, “It’s about finding innovative ways to expand our relationships with brokers,” a constant challenge in the wholesale arena. Lenders are always trying to find ways to add value to their relationships at the point of sale, and offering more products is only one approach. “At Argent, we’ve done this by expanding our product line through Alt-A and by developing innovative ways such as our broker marketing program, Argent University and our recently launched Purchasing Express program.” An interesting development, Argent University is a co-offering with MBA, making those formidable resources available to the broker community at vastly reduced costs.

Speaking of the Mortgage Bankers Association, it was announced last summer that NHEMA, the longtime trade organization for nonprime lenders, would be merged into the MBA to provide a unified voice for the industry. A decade or two ago, the organizations were poles apart in their membership and objectives. Mainstream MBA members were typically not part of NHEMA, and vice versa. Much has transpired in those intervening years to bring the interests of their members closer to convergence. “B and C” lending, later to become known as “subprime,” is now firmly part of the mainstream. If you have been in the industry more than 10 years, you probably remember the days when most brokers did conforming credit loans only, leaving the B and C stuff to specialists. No more.

The merger of NHEMA and MBA is significant for lenders and brokers alike. For the first time, nonprime lending will have the horsepower of the entire lending industry behind it, critical in these days of onerous legislation and statutes that seek to protect borrowers by denying them credit. Rosen, last year’s NHEMA president, is bullish on the merger. “The MBA has enormous industry respect and a very strong governmental affairs track record. I believe NHEMA will greatly benefit, and combining the two trades strengthens the ability for the mortgage industry to act ‘together’ rather than allowing special interest groups to fragment responses and confuse the message.” It will also bring greater standardization to credit grading, due diligence and other aspects of the lending side, as well as to another critically important aspect of the business, she feels. “It sends a strong message to the investor market,” she says. “Through unification of goals and by combining the considerable intellectual capital residing in both organizations, we are showing Wall Street and others how serious we are about responsibly serving this very large, very important market.”

And that’s critical. At the end of the day, investors will be the ultimate arbiters of what makes a “sensible” loan, based on the ultimate indicators of success: loan performance. If they don’t pay, they don’t stay. As CreveCor’s Wegman puts it, “I think Wall Street is deciding as we speak what makes sense. Thinning margins and less demand make everyone sit up and wonder how we got in this position,” a position he describes as “self-inflicted.” Having closer ties with the capital markets is a good thing, he feels. “I believe today there is better communication between The Street and lenders, which will help build a better and steadier platform for the future.”

Experienced mortgage originators will agree that “steady” is a good thing, as long as the market keeps the ability to create new programs to meet new needs. Wall Street has historically “gone along” with most new programs the industry has created, but has taken a lot of shots over the years from programs that didn’t perform as expected. Gray-haired lending types were scratching their heads years ago when the 125 percent LTV loans were hot because those loans went counter to their training, but the Wall Streeters soldiered on until the delinquencies soared and the programs were dumped. The “stated era” has probably run its course by now, at least when low FICOs are involved.

The most historic recent development is the decision by the capital markets to get closer to the point of sale than ever before. Wall Street firms are spending like sailors on shore leave, buying mortgage banks right and left. This consolidation, most recently including upper-tier firms like Saxon, National City and First Franklin, is widely viewed as a good news/bad news scenario by mortgage bankers. In some respects, it is cutting out the middleman between the originator and the investor, but it is unlikely the consumer will benefit through lower rates. It is more realistic to expect that the investment bankers will simply pocket the mortgage banker’s share of the transaction. Still, it is reasonable to hope for greater stability in the marketplace going forward as Wall Street learns and understands the lending business to a greater degree. Their captive firms will presumably be less likely to let competitive trends dictate the making of loans that don’t make sense, and ultimately, that’s good for everyone.

The most feared influence on nonprime’s future is also the one that knows the least about the business—your state and federal governments. Their understandings are many miles wide, ranging from sea to shining sea, but are only a few inches deep. They respond to pressure from consumer groups and activists who feel that every lender who insists on being paid every month is a predator. To make matters more incendiary, the movers and shakers within those governments are people who benefit from crusades, from prosecution and from news conferences about their crusades and prosecutions. For many of them, it is about the votes, not what is best for consumers, and most of them don’t begin to understand the circular, self-replenishing dynamics of our capital markets system.

“Legislation will continue to increase, but if the industry handles it correctly it will be no different than in the past when regulation threatened lending in general,” according to Rosen. “We survived TIL changes and many other things that seemed onerous. The real issue in my mind is a way to simplify the process. Simplification would go a long way to help everyone believe there is not a hidden agenda to push someone out of a home.” Most will agree that our industry could use a lot of simplification, and not only to help consumers, but to provide relief from endless disclosures and processes that confuse borrowers and waste trees by the acre.

Looking astern, we see a nonprime market that would have been not just under-served a decade or two ago, but one that would have been completely non-existent. The nonprime industry has truly stepped up and made credit available to people who otherwise would never have seen their name on the mailbox out front of their own home. This has been accomplished at surprisingly little expense over and above the vanilla agency loan, and thanks to our capital markets system, the money has flowed very consistently and well, other than the occasional Wall Street bout with indigestion such as this one and the little dustup in 1998 that restructured the major industry players.

Looking ahead, we can expect a nonprime market that is a little less excited about offering hyper-aggressive products, but probably a bit more reliable and consistent. As far as future-gazing goes, Marzouk says, “Over the next 12 months, I believe the trend toward efficiency and high-quality service will continue. Lenders who can innovative, be extremely competitive on price and provide outstanding service will succeed.”

Debbie Rosen predicts that, “It will continue to be a tough market. The light will be shining brightly on credit quality, property values and margins. Affordability is key for borrowers, and as interest rates rise, consumers need products that allow them to service their mortgage debt.” Taking the theme of innovation a bit further, she adds, “The mortgage industry in the United States has been brilliantly conceived and I’m never surprised by new products. I believe they will continue to develop to ensure we provide homeownership opportunities to as many families as possible. These might include a good portable loan and a hypothecated loan allowing investments like 401ks to work as down payments.”

Buchanan sees more consolidation ahead. “I think the biggest issue is simply the market size and the hold-over of excess capacity among all mortgage players. In tough times we see irrational pricing and credit criteria, and we are likely to see more of that before we see less.” He adds that ancient Chinese curse—the one that actually might be more American than anything else, with “May we live in interesting times… but not as interesting as 1998.”

James Hennessy