Market Makeover

“A quarterly loan update has proven to be the single most important marketing effort that I have created and distributed to my clients.”

My partner and I have a small mortgage company with two full-time employees and five loan officers. I have been an originator for about 10 years and this is my third attempt at getting a mortgage company off the ground. We’ve been in business for nine months now and things are going alright, but I need some advice on how to push my business to the next level and how to do it on a low budget. My partner and I had a mortgage company two years ago and at that time we had two loan officers. We tried to get it up and going, but we struggled due to a lack of marketing capital and unforeseen equipment outlays. The business folded and I went back to working for someone else. I had a couple good years with them and decided to strike out into business ownership again with my partner.

Our company’s niche is foreclosure loans. We solicit people in foreclosure to refinance and we have several investors who are willing to finance these types of loans, if conventional refinance routes are unavailable to the borrowers.

I would say that right now our business is 70 percent foreclosure refinances. Another 20 percent is derived from debt-consolidation, seconds and only about 10 percent is purchases.

We want to become more diversified and add more markets. I know the regular marketing techniques — newsletters, telemarketing, advertising — but I need some advice regarding low-cost marketing and ways in which I can get some cash infusion into my business. Are there any small business loans out there that could provide financing, so that we could leverage ourselves to do more advertising?

We’ve tried the gamut of marketing. We even tried outside telemarketing. We contracted an out-of-state company to do the job, and they failed to complete it, and we received very few calls from the work that they did. Now we can’t find the company to get them to finish the job that we paid them to do. We spent money on things and it’s just money that’s lost. I really want this business to survive and I truly believe that the third time is a charm. Any recommendations would be appreciated.
DW in California

Brian Farley
Pride Mortgage Incorporated, Provincetown, Mass.,

I admire your desire to own and operate a successful mortgage company, since this is your third crack at it. I’ll give you a bit of my background, followed by some suggestions that I hope will assist your effort. I had a 15-year banking background when I went to work for a small mortgage company as a full time originator. I carved out a niche in financing second homes located in resort areas, basically an “A” credit, conforming lender.

After a few years, I decided that I wanted to work for myself. I began by contacting all of my clients and referral sources. They overwhelmingly supported my decision and pledged allegiance, and I convinced my processor to come with me.

I incorporated my company and I applied for the necessary licenses in the state where I was to operate. I employed an attorney to review all loan forms and documents to ensure my compliance. I chose a loan operating software system (Calyx) that would work best for my company. I wanted to take advantage of the technology in the marketplace (very important!) so I solicited investors that participated in FannieMae’s Desktop Originator and FreddieMac’s Loan Prospector programs. I found a small, inexpensive office space and purchased used office furniture from a local distributor. I paid cash for all the start-up expenses, about $25,000. I was up and running and my total focus was to originate loans.

Broadcast fax is a great, inexpensive way to communicate to Realtors, and other referral sources. I sent announcement cards to all of my clients. The referrals started to come in. We closed the first loan during the first week. When the year ended, I was proud to say that I doubled my production, and I was honored to be included in the Mortgage Originators Magazine Top 200 Originator list.

It takes a lot of hard work to start your own company. You have a 10-year history in the originating business. The first thing to do is contact each client that you’ve done business for and let them know about your enterprise.

I made a decision not to hire loan officers in the beginning, because I had confidence in my own ability and I did not want to baby-sit loan officers. Although I do not know the strength of your origination team, I believe that starting a company with five loan officers is very tough. Many company owners think that they must have a few loan officers to ensure a steady stream of business. Absolutely not! You spend so much time managing and assisting them, the time when you should be originating. Do what you do best — originate.

I see that your niche is foreclosure and debt-consolidation loans in the subprime area. I agree with the need to diversify. Try to pump up your purchase market. Many subprime shops do not think of Realtors when soliciting for loans. It is amazing how many Realtors do not know that buyers can actually buy property when they have troubled credit. Teach the Realtors in your market. Send out some broadcast faxes about your special programs; offer to teach them about the certain types of purchase loans that are available to buyers. You may be surprised with the response. Let real estate attorneys, CPA’s and financial planners know that there are programs available for their clients. Do not assume that they know what is available in the mortgage industry.

Focus on the service that you provide, I cannot stress that enough. Be sure that you are establishing long-term relationships with your clients. You may present a future-conforming, loan-refinancing option to clients. If you provide them great service, they will want to continue to do business with you. If you have a 10-year history in the business, I believe that you have a gold mine in your database.

Continue to read M.O.M. each month; it contains a wealth of origination ideas. Attend seminars and continuously look for investors in the market that can provide unique programs.

The Small Business Administration may offer low-cost business start-up loans. Contact a local office of S.C.O.R.E. (Service Corps of Retired Executives) to help evaluate how the SBA can help. I certainly hope that the third time is a charm!

Daniel B. Smith
Senior Vice President and Regional Manager
Republic Bank, Plymouth, Mich.,

I hope the third time is a charm for you and your partner, but suspect that you will continue to have problems if you don’t change some of your mindset and business fundamentals.

You indicate that you have either worked for, or owned, four different mortgage entities over the past 10 years. You had a couple of good years while you worked for someone else and have struggled with self-employment. Have you considered that your “chronic migrations” to different companies may be affecting your “client retention strategies,” and their ability to recall whom their lender was when you originally wrote their loan? I believe that your moves and a lack of a solid retention plan are costing you considerable money, which could be used to fund additional marketing ideas.

You state that you have tried all kinds of ways to bring in leads to your sales force, such as newsletters, telemarketing, media and print advertising. All the loan officers in my office are required to participate financially in any marketing endeavor we undertake. Basically, because I’ve learned that when you give someone something, they don’t value it. You need to put more reliance on your loan officers to go out and make things happen, instead of investing (and even borrowing) funds to pursue an elaborate marketing strategy.

While marketing is important, it does not require a large budget. A simple business card and a sincere smile are powerful marketing concepts that do not require monetary infusions. I call this the “Shoe Leather Campaign” – get out of your seat and put your feet to the street. The least expensive marketing tool is always a satisfied past customer. If you want true success, you must make it a mandate to stay in close touch with your customer base at all times. I have found “ACT! Database Software,” at a cost of $129, to be extremely helpful in doing just that. It can track every one of my past clients, and it allows me to document each and every contact I have with them.

If you don’t already have it, acquire ACT! Use it to send mailings to remind past customers that you still exist and are available to help them with their needs, or the mortgage needs of their friends and family. I send a mailing once a quarter to all my past customers. It doesn’t matter what it is, as long as it has my name, phone number, and face on it.

Another low-cost strategy is to simply pick up the phone. Call your clients. Almost everyone knows someone who is thinking about buying, or who is buying a home. Ask for those referrals, or just call and say, “How are you doing?”

With regards to your niche, I think that having a focus and expertise in one or two areas is not a bad thing. I would suggest that you diversify your business into a broader base, which should include some Realtor contacts. You could take advantage of your background in foreclosure lending to route business to select Realtors, who would no doubt be grateful and send you some business in return. For instance, when you discover a foreclosure situation, for which you can simply not fund a loan, send that prospect to a favorite Realtor. If your homeowner can’t get a new loan on their property, they will need a Realtor, and quick, in order to liquidate it. Also, use your customer base to offer refinance or purchase options to former foreclosure borrowers. Track your loans, and 12 months down the road revisit those people and pull them out of a bad loan (high interest rate) into a good one. Play on the fact that you kept a roof over their heads when they were down and out, and ask for their referrals as well.

I would caution against borrowing funds, unless it is for operational expenses related to starting up your business. In that case, you may be a candidate for a Small Business Administration loan. However, borrowing money, when you can’t afford to pay it back, is the kiss of death in business. I would not advise you to take on additional debt to fund a marketing endeavor, when the methods discussed above can be employed at a very low cost and can result in high returns. To me, the mortgage business is very simple – take good care of your customers, stay in touch with those customers, keep them informed, and go to the bank.

Starting a mortgage operation involves considerable financial risk and tenacity and I applaud your efforts. Please use my response as a third-party endorsement to urge your loan officers to take responsibility for generating their own leads. I believe you will become effective when your sales force becomes effective.