Technology and easier access to capital have allowed mortgage companies to grow quickly over the past decade. In the process they have revamped their operations to take advantage of new tools.
Yet these changes have occurred unevenly, as we can see by looking at three areas of the industry: loan origination, secondary marketing, and loan servicing.
Loan servicing has been transformed over the past few years. Whereas only one company serviced more than $10 billion 10 years ago, now four companies service over $100 billion in home loans. And while one employee previously was needed for every 500 or 600 loans serviced, now lenders can handle close to 2,000 accounts per worker.
Tools such as tape-to-tape transfers, power dialers, and document scanners have automated many repetitive, time-consuming tasks.
Servicers are finding their costs reduced, and service levels are improving through the use of technology. Today they are going further by linking their operations to originators, investors, and outside service providers such as title companies and mortgage insurers through the use of electronic data interchange.
Secondary marketing has similarly been revolutionized. Not long ago loans were sold in small packages by contacting different investors. When lenders were looking for a secondary marketer, they searched for people with extensive Rolodexes.
What was most important was having personal contacts with a large network of investors. Pricing was negotiated on a case-by-case basis, and spreads of a point were not unusual.
But today Wall Street sets prices, and often finds the final investors. Secondary marketing experts have degrees in finance and mathematics.
They spend their lives peering into computer screens, calculating hedges, and moving large mortgage-backed securities that have spreads measured in a few basis points. Secondary marketing now is a faceless business, dominated by volume.
A major change in loan originations has been the growth of correspondent and wholesale loan purchases. Lenders are trying to find ways to cut origination costs while staying competitive in their marketplace.
Yet the street-fighting loan officer or account executive generally has not joined the mortgage lending revolution. Most are operating pretty much as they always have.
We don't simply mean that few are using laptop computers, though that is true. But the real problem is that loan officers and wholesale account executives are often relying solely on personality and pricing to get loans.
Instead of finding customer needs that they can meet, too many loan officers count on being "at the right place at the right time" to pick up business. Without a written plan and a strategy for achieving it, their market share is not growing.
Rather than being in this business 10 years, some loan officers have repeated the first year 10 times. Yet consumers, real estate agents, and builders today face a multitude of new loans, such as adjustables and affordable housing loans, that they need help to understand and use wisely.
Loan officers need to be service providers, not rate sheet quoters. Today's technology allows originators to offer more value to more customers than ever before.
Soon loan officers will be able to approve loans at the point of sale using automated underwriting. Imagine how much anxiety you could remove from consumers and real estate agents when they know you are a mortgage decision-maker.
Where do we begin our loan officer or account executive revolution? It is our view that a field sales leader's prime responsibility is to develop his or her loan officers, not to expand production.
Achieve the former and you will build a lasting increase in loan production. If we coach individuals to be successful, we will meet our production goals.
A tough question is: What percentage of our loan officers are truly professional? We can only find fault with our personal leadership if we see Pareto's principle that the top 20% get 80% of the business at work in our company, branch, or unit.
It is not unusual for my firm to receive calls from managements asking us to motivate loan officers. We'll be asked to come in and give the troops "a shot in the arm" or a positive "kick in the pants."
When we state that a review of sales leadership should be accomplished first, we often aren't heard. For over 10 years, we have been saying that loan originators are only as effective as their sales leaders.
Our purpose here is not to pass judgment or to blame loan origination leadership. But we would be less than honest if we didn't.
We need to send a wake-up call to those who are the sales leaders in this very significant industry. For wake up we must.
Too often sales leadership is delegated to occasional sales meetings at which the sales leader does all the talking and bores originators into a blue funk.
A good test is to see if your loan originators are fighting to get into sales meetings. And are they never late, because the meetings always start on time and are so personally helpful?
Another tradition that may not be that effective is the annual "Chairman's Club" gathering, usually held at a resort where the same people in the company play golf or tennis together each year.
Our point is that sales meetings and annual awards functions have a defined purpose that is seldom achieved because these get-togethers are structured wrong.
What if originators paid their own way to get there, or at least half of the cost, and the money saved was used to upgrade the learning experience?
We need to question some of our business habits. One of the industry's toughest challenges is the producing branch or unit manager. Anyone who has served in this position knows what a constant conflict it is to try to be outstanding at both. Although a few do it brilliantly, the conflict is always there.
People in this role should consider being a sales leader first and a personal producer second. If personal production conflicts with a leadership role, curtail the direct sales efforts.
Management must cooperate by compensating field sales leaders for urging others to higher production. In this way lenders are investing in their loan originators.
We promote turnover and failure far too often by failing to properly recruit, train, and coach. To reduce the cost of origination, we must professionalize our loan originators.
Of course, that's assuming you believe as we do that housing needs are here to stay. And that Fannie Mae and Freddie Mac aren't going to drive us out of business. And that we can originate mortgage loans at a profit.
Given these assumptions, we now need to change our operations in order to maximize our current opportunities.
Mr. Pratt is chairman of Pratt-Daly Corp., San Diego, a consulting firm that specializes in training loan officers.