I left the mortgage industry this February, after 15 long years as a loan officer. There were many reasons why I left, but I wanted to write about the one I call the “Priceline.com Effect.”
I have nothing against Priceline.com. In fact, I use the app quite a bit. If I suddenly need a plane ticket from New York to Las Vegas, in a matter of moments, with the click of a button, I can find the airline that offers the least expensive flight.
There are already versions of priceline.com within the mortgage industry, like the rate-shopping site Lending Tree. The industry also seems intent on moving toward process-shortening systems like Rocket Mortgage. These platforms are flawed, but they’re only in their infancy. Technology moves at the speed of light, and it won’t be long before the mortgage process is completely automated, and the job of a loan officer is phased out. With the click of a button, in a matter of moments, we’ll all have access to the lowest rates. And In today’s society, finding the best deal trumps everything else.
Humans thought they needed a superpower, so they built the Internet, which is now an extension of our brain capacity — a thumb drive filled with new abilities that can be accessed through a wireless handheld device that works almost like a magic wand. Poof! Now we’re all highly trained, highly effective retail customers! Give us 30 seconds and we’ll find the best deal. Whether you’re buying a plane ticket or a trampoline, or you’re getting a mortgage, there’s no legitimate excuse for being a poor shopper.
The Priceline.com Effect has changed humanity’s collective mindset on a global scale – we’re borderline obsessed. I have skipped entire nights of sleep searching the corners of the Internet for the best deal on an area rug! And when I find that deal, I wear it like a badge of honor. If you’re reading this, ask yourself, have you been there too? We’re getting our goods and services faster and cheaper than ever before, but we’ve become so enamored with our newfound powers that we ignore the negative traits that we’ve allowed to infiltrate our conscience.
Separate from the unhealthy obsessions and the lack of sleep, the Priceline.com Effect can also cause blind spots. When people become so focused on saving money, they lose sight of other elements in a transaction that used to be very important, like customer service and “know-how.” In many situations, we marginalize the expertise and guidance that an experienced professional can offer because it’s not as important as finding the lowest price or the best rate.
Why I was so frustrated
The life of a successful loan officer is not an easy one. Your phone rings almost non-stop all the time. Even when you’re on vacation, you’re never really on vacation. When people buy a house, they can’t stop to wait around for you. They have deadlines to meet and they need you to get them to the finish line on-time.
The highest number of active mortgage applications I ever simultaneously managed was 45. That means I needed to provide regular updates to at least 45 people, 45 real estate agents and 45 attorneys. It’s extremely difficult to keep up with that. Still, I can vividly remember specific instances where I went above-and-beyond; Times I left my family dinner table to take an important call; or times I stopped swimming with my kids at the lake on a Sunday to issue a same day pre-approval; or the time I watched my entire family and extended family through a window, running around on the beach in the Outer Banks while I was in the living room returning phone calls and responding to emails. That was the price of success and the path that I chose.
But being pulled in 135 different directions was not the ultimate cause of my frustration.
I was most disheartened in instances when I thought I provided the best possible customer experience, and it still wasn’t enough to earn my valued customer’s business. The instances in which the client and I had a great rapport; When I communicated well, when I patiently answered questions, and when I was ahead of schedule; but the rate I quoted was just a shade higher than some other bank. For so many clients, that was a deal-breaker, especially those who knew, without a doubt, they were easily qualified to borrow the amount they were applying for. For them, the process and who was guiding them through it, was a formality, an unimportant detail.
Why Expertise and Professionalism Still Matter
For many, the process of applying for a mortgage is as pleasant as taking care of a stack of parking tickets. In some instances, it’s two long months of endless requests for documentation, supplying statements that you’re sure you’ve already sent. It’s not rocket science, but some lenders can leave you feeling like it is. Unfortunately, the customer doesn’t know what they’re experience is going to be like until they’ve already been through it. And even then, many reach the conclusion that enduring two months of “pain” is the cost of having lower payments for the entire lifecycle of that mortgage. Honestly, that’s a hard premise to argue with.
Some lenders and some loan officers work far more efficiently than others and they consistently deliver a process that is more convenient and more efficient, and far less painful and annoying. The real question though, is how much is great service worth?
Seemingly, the customer shouldn’t have to choose. They should be able to find a lender that can offer the best customer experience as well as the lowest rate. But it’s trickier than it seems. Based on my observations as well as conversations I’ve had with homebuyers and other loan officers within the industry, for the last few years, the lender(s) that have consistently offered the lowest rate on the street are the lender(s) that have the reputation for having slowest and most painful loan process.
From what I’ve seen, the customer experience alone is rarely a more attractive enticement than a lower rate, especially since loan officers are left trying to convince clients that they’ve never met that they offer a better loan experience than their competition.
There is however more than just rate and process that separate the good loan officers from the great.
Since getting the best deal is so important, let’s start with this: Getting the best rate doesn’t always equate to getting the best deal. I could probably site dozens of examples from my years as a loan officer, but instead I’ll offer some details from a recent situation; one in which I assisted on in my new role as Real Estate Finance Specialist for the Espinal Adler Team.
The team’s clients were shopping for an apartment with a budget that maxed-out around $2 million. From a monthly standpoint, the clients could afford payments that were in-line with a $3 million apartment. But from an asset standpoint, they had just enough to make a 20% down payment and cover closing costs. So, when they found an apartment they liked that was listed around $2.3 million, it seemed like a stretch – they weren’t liquid enough to cover all of those costs.
- I found a lender that allowed for 85% financing at that price point. It freed-up $115,000 in assets and put them in position to make an offer if they wanted to.
- Of course, there was a downside to this plan. 85% financing meant a much higher monthly payment, because they were borrowing more money and because mortgage terms often change when deal structure change. Rate is about risk, so when you borrow a higher percentage of a property’s value, many lenders will adjust and offer a higher rate. And, in many instances, when a borrower makes a down payment that is less than 20%, they’ll often be required to pay a high monthly Private Mortgage Insurance (PMI) payment.
- I found a lender that offered a single premium mortgage insurance policy, a 1-time payment at closing. The cost of the policy was just a little over $7,000, and the lender would even let the client finance that into the loan. The financed single premium mortgage insurance policy would save hundreds of dollars per month.
- Still, the proposed structure resulted in a monthly payment that was around $900 higher compared to a scenario in which they would put down 20%. The higher payment was mostly due to the them borrowing an additional $115,000. But the lender’s rate was also .25% higher when offering 85% financing vs. 80%. Our clients would still qualify for a loan with the proposed payment, but it wasn’t something they were comfortable with. So, I had more work to do.
- The apartment we were focused on was in a newly constructed building, one where our team has successfully negotiated large concessions for past clients. I was confident that the team could negotiate a seller credit for $40,000 that could be applied toward permanently buying down the rate. In effect, a 1-time fee paid by the seller that would reduce the rate and lower the payment for the life of the loan. The new lower rate would have dropped the payment significantly. We were able to whittle-down the almost $900 increase, all the way down to a difference of $119 per month.
To re-cap, we presented a structure that freed-up well over $100,000, and we did it in a way that would cost our client just $119 per month. In this instance, creative structuring didn’t result in a lower payment, but it made an out-of-reach apartment attainable. I assure you though, there are many instances I could point to where a better loan structure did lead to a “better deal” even when that structure didn’t come with the lowest rate.
LendingTree and Rocket Mortgage can’t sort through all of these permutations. Maybe someday that’ll change, perhaps through the use of artificial intelligence, but for now we can still poke holes in the Internet’s superpowers.
Navigating your way through the homebuying process can be like a minefield. There are so many things that can derail the application process and even lead to a declination. The most experienced, skilled and knowledgeable loan officers can make all the difference.
- What solutions can you offer if the appraisal comes in low?
- What if the seller is delaying the closing and your rate is about to expire?
- What if the borrower is self-employed, owns more than a dozen companies, and business tax returns for each company are complex and not necessarily consistent year-to-year?
Not only can problems like these kill a transaction, sometimes they can be very expensive problems. Knowing how to solve them or how to avoid them can save even more than securing a slightly lower interest rate.
The vast majority of mortgage loan officers have no real salary. They work 100% on commission. No matter how hard or how smart they work, and no matter how responsive and effective they are, if they work for an institution whose rate isn’t the absolute lowest on the street, they’re going to lose their fair share of customers, and it’s going to have a massive impact on how much they earn. Some really great loan officers might even decide to leave the industry behind, just as I did.
I’m not selling mortgages anymore. My new position is unique in that I instantly have more credibility with homebuyers than I ever did before. This is true because our clients know that I’m not trying to convince them that they should let me originate their mortgage. I’m a guide for them. I’m an advocate. I’m an extension of our client’s Internet superpowers, highlighting the deficiencies that technology has not yet corrected or mastered.
In this role, I’ll do my best to uplift the very best loan officers in the industry. I’ll recommend the professionals who always put their customers first. I’ll praise the problem solvers and the creative thinkers, and I’ll go out of my way to quantify their value and to stave off the Priceline.com Effect.