It is no secret that as the credit crisis has deepened and prolonged over the last year, many independent mortgage brokers and specialty mortgage companies have been shown the door.
Real estate agents that dealt with these brokers are seeking new sources for loan referrals. This has created a market shift in residential originations that community lenders can fill, to the benefit of lenders, borrowers and the economy alike.
The Federal Home Loan Bank of New York recently completed a telephone survey of 101 senior loan officers from our community bank members and 207 experienced residential real estate agents. The survey was designed to identify how community lenders can enhance their ability to obtain mortgage referrals.
The results indicate that an opportunity exists for a closer relationship between community bankers and realty agents. In fact, 60% of the bankers surveyed indicated that they want to do more business with real estate agents. The agents, in turn, offered suggestions for what lenders can do to enhance their referral opportunities.
By polling both groups, we identified the mortgage product/service dimensions that were most significant in increasing referrals. We then asked real estate agents to compare the performance of community bankers with competitors, such as in-house mortgage brokers, independent brokers and specialty companies, on these dimensions and offer suggestions on how the bankers could improve their practices.
The agents suggested, for example, that community bankers have a diverse product menu, as well as the ability to work with the borrower to find a mutually acceptable mortgage. Of course, bankers would need to do so within their prudential credit/underwriting and risk management guidelines.
Also, to increase the speed of pre-approvals and commitments, the agents suggested that bankers implement organizational changes that lead to faster communications with buyers and their real estate agents. To increase availability in the evening and on weekends, bankers could employ originators who are available to assist agents and borrowers during nonbusiness hours. This would improve communications at a time when agents and borrowers are most likely to be searching for a home.
And by using on-site visits and other educational tools, especially after organizational improvements or changes have been made, community bankers could communicate change and value to real estate agents.
In addition to these key points, other dimensions that both parties noted as being significant to increasing referrals included the number of mortgage options, the frequency of calls to real estate agents, assistance in completing mortgage paperwork and the speed of getting a pre-approval.
Interestingly, lowering interest rates and having an in-house resource were not cited as important factors by real estate agents. They view community bankers and competitor sources of mortgages as fairly comparable on rates. As long as a mortgage is competitively priced on a consistent basis, real estate agents are willing to recommend them to their customers.
Furthermore, only half of the agents reported having an in-house funding source; among these respondents, only half referred their customers to that resource. From the real estate agents' perspective, having an in-house resource is not a barrier to increasing referrals to community bankers.
A substantial number of the bankers surveyed (11%) indicated that they already have strong connections with real estate agents. These bankers reported that they generate 50% or more of their residential mortgages from real estate agent referrals. The bankers in this "high referral group" dedicate loan officers solely to residential mortgages.
Major changes to compensation plans may not be needed to adopt this practice. The "high referral group" compensates residential originators much the same why the other lender respondents do — more than half said they give their loan officers a full salary with no commissions.
Following our survey, which is available in full on the Home Loan Bank of New York's Web site, we concluded that an examination of each of the dimensions noted, particularly flexibility, speed of approval and availability after business hours, may result in higher referral volume. However, each dimensions represented the most important issues identified in the qualitative research, so none should be ignored.
The takeaway from the study is that community bankers — who have skin in the game — have long practiced conservative, responsible lending by focusing on one major and basic point: the ability of the borrower to pay back the loan. This is the kind of prudent lending our financial system needs more of as it recovers, and members of the Home Loan Bank of New York have continued to make these loans during this credit crisis.
Increasing the role of the community lender in originating responsible residential mortgages represents a tremendous opportunity to revitalize the economy.