Six Things You Should Ask Your Mortgage Partner
And a Market Case: Pacific Trust Acquires Mission Hills Mortgage Bankers from the Owners of Tarbell Realty
Changes in Your Strategic Partner
There is nothing more important to Realtors than the relationships that enable a smooth transaction. Yes, the Realtor, lender, title and appraisers, inspectors, attorneys – and the ever-unpredictable consumer. These are extremely difficult parties to align because of the natural frictions, finger pointing and many priorities that tend to vary from partner to partner.
Why do priorities vary? To put it simply, these are different companies with different management structures and teams. As a result, each company has different pipelines of orders and customers, with their own relationships on the line. Lastly, not all deals are created equal, as we say in housing. The largest home pays the appraiser more; the largest loan amount pays the mortgage company more; the largest sales price pays the Realtor more – and so on.
So if there is a loan application for $ 190,000 in in the lender’s pipeline with pressure to get it finished due to rate lock sensitivities, but the Realtor on this transaction is also working a $ 500,000 opportunity, and then the appraiser has to do the home inspection/appraisal for the $ 190,000 transaction, but then an appraisal order for a home twice the square footage comes in – client priorities are not aligned. These dynamics take place while the fickle consumer continues to look for a home and could very well be wooed by yet another Realtor that intends to sell them one of the homes they have to offer; the cycle is confusion, challenging and nerve-wracking at best!
The message is, you try to control the chaos by establishing some structure, order and predictability into the transaction by aligning your strategic partners as closely as possible – right? You have to have as close a relationship with the most important parties of the transaction as ethically possible; the Realtor, lender, appraiser and attorney/title company etc. need to be linked arm in arm in order to complete the transaction at the lowest cost on the fastest timeline possible to meet the consumer’s needs.
This sounds easy, right? We have been trained that the key is to become familiar with your partners, and over the years of doing business together, a smooth process will result in efficient execution – right? Once this is achieved, you can scale your business by focusing on marketing and sales knowing that you have a scalable and executable process – are you with me so far?
Well, for many of us who have been in the business pre-housing bubble (pre-2001), during the creation of the bubble (2001-2007), and of course, when the bubble burst in 2008, symbolized by the collapse of Lehman Brothers on September 15th of that year, we know how hard it is to establish close, dependable business relationships to ensure a smooth transaction for our customers.
Many of us in mortgages and real estate have businesses built around partners who ended up going out of business, or the dynamics of the relationship changed for the worse after a purchase. So, what can you do? How can you pick the right partner? You can’t do anything if your most strategic partner goes out of business, but if your strategic support service provider to the real estate transaction is acquired, what signs of a successful acquisition should you look for?
Aligning Interests by Controlling Chaos
In today’s market this has happened a lot. When Realtors rely upon their most strategic partners and one of them goes out of business or gets acquired, it is catastrophic at worst, or very disruptive at best, to the deals that you have in your pipeline. For the purposes of this article, I am going to focus on the most vital and readily visible relationship to the consumer – the relationship between the Realtor and the mortgage lender. Although not the only important party in the transaction, it is by far the most critical; in more than 70% of the deals across the United States there is a simple saying: no loan, no home.
While consulting with numerous real estate agencies, these are the most vital questions that you should ask your mortgage lender before, during and after such an acquisition:
1. How will this acquisition affect the culture of our two organizations working together?
Culture is important, and probably the most neglected part of an organization. A real estate agency or mortgage partner may have all of the mechanics functioning well, but without a tangible and well-defined culture, you are a body without a soul. A company’s culture defines not only what a company does, but what it believes. Their beliefs, their core values and how those core principles line up with your organization are all key to the experience of your client. The right partner should amplify who you are in the marketplace – and, of course, to your clients. This is the most important aspect to your relationship with your partners and probably the most difficult to assess unless you have clarity as to your own corporate values and goals.
2. How will the consumer/client be affected?
During the time of any transition, clients are always affected. The question isn’t whether or not they will be affected; the question is HOW they will they be affected. The goal is to understand the process moving forward. If the acquisition is intelligently and professionally thought out, a clear process will be outlined to ensure that the disruption to the client is minimal. Incentives, credits or post-closing gifts could be planned for borrowers who are impacted during this transition.
A clear explanation of the transition could be made by the lender (but always with and through the Realtor) to the borrower regarding what challenges, if any, they may encounter. The key is information, as this leads to trust; if the borrower trusts you and your mortgage partner, then the experience driven from the trust assigned to you will far outweigh any issues that may arise in the process.
3. How will your turn times in underwriting change?
“Turn time” is everything in the mortgage process – and, naturally, in the life of the Realtor as well. This term refers to the time it takes for a loan to go through processing and underwriting. For many depositories (any state or federally chartered bank that takes ‘deposits’) such as Wells Fargo or U.S. Bank, it may take 80-90 days to underwrite a file. So, if your mortgage lender is being acquired by a depository institution, this more than likely will not be a good sign for the quality of service to you and/or your customer. Many depositories simply do not understand the mortgage process, mortgage technologies and how to manage/grow an effective and profitable mortgage operation. A recent transaction will be reviewed in the case of a highly successful real estate agency, Tarbell Realty of California, and the acquisition of Mission Hills Mortgage Bankers of Northern California by Pacific Trust, a depository bank based in Sothern California.
Ideally, an acquisition should provide your mortgage partner with sufficient leadership freedom to make the best decisions for the mortgage operation, additional capital to expand its funding capacity, and financial resources to hire trained underwriters and back-end support staff to better support you and your client. Mortgage divisions need to be nimble, responsive and technically savvy to put in place systems that best serve consumers. If this is the case, you want to understand how many underwriters, processors, etc. may be hired, the timeframe of such actions, and whether or not the functions (processing and underwriting) will be flexibly located in regional offices where your real estate agents are, or centrally located. If you can’t get a straight answer or if you don’t have confidence in the answer you are given, then I’d find a different partner.
4. What is your monthly capacity, and will that increase with this acquisition?
“Capacity” means everything to a Realtor or a real estate agency. If you have any market share as a Realtor, then you need to understand what the capacity is – in both units and dollar volume of your mortgage partner. When a mortgage company is acquired you can only hope that their capacity will expand, which means they will have the liquidity to fund more transactions on a monthly basis provided they are staffed to execute. The optimal acquisition will support the management of their existing clients and business flow with enough resources to support additional growth. This is critical especially in a recovering market; as housing demand increases with an improving economy, you want to make sure you can grow with the demand. As a Realtor (or agency) you can grow only as quickly as your mortgage partner can process and underwrite loan applications.
5. What new systems will be put in place to improve Realtor and borrower communications during the mortgage process?
More than likely, your mortgage partner will look at you with a blank stare. If they are very good, they will have thought of this and have ideas as to what would best serve our needs as Realtors and housing professionals. We are only as good as our last deal, and with poor communication around very tight underwriting guidelines, this only leads to a confusing situation in the eyes of the borrower.
There are a number of technologies in place that can best present options for borrowers – Mortgage Coach’s Edge product (www.mortgagecoach), Top Of Mind (www.topofmind.com) and their post-close sales and marketing campaigns, and MonitorBase (www.lenderfeed.com) and their credit monitoring solution to name a few – that can elevate the dialogue to a more
sophisticated level of service. In today’s complex housing market, it is not simply about nurturing existing demand for housing; it is about cultivating your own demand for tomorrow.
6. With so many borrowers not qualifying for a mortgage, what can you do to help them improve their credit or better understand their options?
With an average credit score of 740 or higher for closed loans today and the average consumer credit score hovering around 645, if you are a savvy Realtor you will ask not only what your mortgage partner can do to assist those who can qualify today, but what they can do to help borrowers qualify for a mortgage tomorrow. Too many Realtors are losing deals to borrowers who aren’t prepared for the rigor of today’s underwriting. This is in part the Realtor’s fault; we need to be forward thinkers so we can better nurture relationships into qualifying for a mortgage. This ‘cast a broad net’ strategy not only will help you as Realtors close more loans, but it will enable you to build client loyalty – which is almost more valuable than the deal itself. This effect will lead to higher numbers of referrals and, of course, to greater rates of repeat business.
Mission Hills Mortgage Bankers Acquired by Pacific Trust Bank
Since 2009, depository banks have largely taken over the mortgage business. Wells Fargo has over 40% market share for mortgages today, and depository banks originate approximately 70% of all mortgages in the United States. Prior to the collapse of the market in 2009, this wasn’t the case. For over a decade, non-depository mortgage institutions originated more than 70% of all mortgages. Their skill and precision, even more so today, enabled them to provide consumers with a personal approach to what is otherwise a very confusing process.
Therefore, in the wake of the depository takeover of the mortgage business, many banks have taken advantage of the existing market circumstances by acquiring mortgage businesses. The main goal is to provide a highly profitable service to their existing clients and to increase the number of depositors to the bank. This strategy has largely backfired for most depository banks due to their lack of understanding of the nuances and strengths of what makes a mortgage business profitable and efficient. Rather than allowing a mortgage division to operate with the proper amount of freedom that it needs, the culture, process and people that made them an attractive acquisition target to begin with are crushed by the rigid and non-innovative processes of the bank.
This doesn’t have to be the case. These issues are entirely common when a depository acquires a mortgage banking company, division or platform. The best way to avoid this is through more systemic changes in the management and (accountability) oversight of the mortgage division. With adequate freedom in human resources, sales management, compensation, compliance and operations, a mortgage division, under the right capital structure of the parent company, can successfully expand while serving Realtors (and other referral partners) efficiently and effectively.
While in most cases such acquisitions fail or struggle to make the right adjustments to their recently acquired mortgage division to be successful, there are a few cases across the country where the right approaches are made. This is indeed the case with Pacific Trust Bank (otherwise known as PacTrust Bank) and their acquisition of Mission Hills Mortgage Bankers, formerly owned by the wildly successful Tarbell Realty Family.
Mission Hills Mortgage Bankers is a preeminent mortgage brand and platform on the West Coast. Since their founding in 1969, Mission Hills has been one of the top direct lenders in the United States. Mission Hills was started by the Tarbell Realty family with the focus of serving Realtors and consumers as the realty enterprise grew in success and market share. Under the leadership of John Connell, who was largely responsible for their successful retail growth strategy, Mission Hills expanded efficiently and effectively in California, Oregon, Washington, Nevada and Arizona.
Connelly worked closely with his two counterparts to grow a consumer direct division in southern California and to nurture the growing Tarbell Realty enterprise. The successful execution of each team member established a culture of stability and success during what has been considered a volatile period in the mortgage industry. Even in the expansion of the mortgage bubble, employee retention remained stable because of a highly attractive culture within the organization that was built on the concept of servant-driven leadership both to clients and to one another.
This proved to be even more important in the implosion of the mortgage business, which allowed them to maintain their existing builder and Realtor relationships and adequately keep their origination team in place. Stability through difficult times built a strong team, company brand and a client service-driven environment. It is understandable that Pacific Trust Bank identified them as an optimal acquisition target, which was consummated in August of 2012. But with acquisition, what would happen to their culture, employee retention and referral relationships? Would their level of service be negatively impacted by a diversified organization whose interests go beyond mortgage transactions?
To date, the Mission Hills Mortgage Banker acquisition is being closely watched, as the potential is significant. Under the leadership of Steven Sugarman, Pacific Trust’s CEO, the acquisition and mortgage retail growth strategy presents a tangible opportunity for existing referral partners and consumers who are looking for a client-centered banking operation that is both consumer friendly and efficient. Given timely market conditions and the continued contraction of the mortgage industry, Pacific Trust is quickly becoming one of the top banking retail brands in the United States, and with the right support, Mission Hills will grow into one of the premier mortgage operations right along with it.
Any questions or feedback on this article, email Rick Roque, Managing Editor of The NicheReport Real Estate Edition, at [email protected] or call him at 408.914.5895.
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