Where are the Customers’ Yachts?

A recent Wall Street Journal told the story of mortgage mega-mortgage producers who made well over $1,000,000 originating mortgages last year. I am sure that a mortgage mega-producer’s ability to fund 1,000 loans a year is a considerable achievement.   I am equally sure that such success is borne on the backs of clients who got poor service.

A large clerical staff can easily accomplish processing, approving, and funding 1,000 simple loans.  If we make the unrealistic assumption that he funds a loan for each and every person who enters his office, he must fund four loans every day.   If the Loan Rep spends two hours a day working with his staff to keep all of his loans on course, that leaves six hours for working with his clients. He has a mere one and one-half hours to spend with each client. That may be enough time to “sell” the loan but I can tell you that it is impossible to give a client the attention he deserves and is paying for in one and one-half hours.

A professor from Harvard who studied the economics of originating mortgages concluded that $1,600 is a fair fee. Unfortunately, I think that he gave consideration only to the execution of the loan process, as investors mistakenly did when they shifted the focus from what stocks to buy to what it costs to execute a trade. Focusing on the cost misses the point that from the consumers’ standpoint, the overwhelmingly important factor in is the value of the counseling the Loan Rep delivers. His job is to help them make intelligent decisions. He helps them define their goals and helps direct them to the loan that helps them meet their goals. He helps them choose the right rate versus fee option and helps them lock in their rate at the most opportune time. You aren’t going to attract intelligent, experienced Loan Reps if you just pay them a share of that $1,600.   What you get is an office full of people making slightly more than minimum wage, not the kind of people you want advising you on this important matter.

Is advice important? Absolutely!   A conscientious Loan Rep can easily save a client $10,000 on a typical transaction compared with the plain-vanilla package provided by a volume operation.

Had the clients focused on getting value rather than just “getting a loan,” each one of them could have found someone else who was operating a more customer-oriented operation, someone who could take the time to be an effective counselor.   The result of more careful and deliberate counseling would be that those 1,000 clients could have saved, collectively, many times the $1,000,000 income of the person who was supposed to be helping them.

In every town there are dedicate professionals who really care about their clients, who will be an advocate for them, and who might actually remember their names a week later. My advise to borrowers is to go find one of them.   And getting an education before initiating the process is a good idea too.

In reading the article I was reminded of the story about the visitor to Wall Street who was shown all the stockbrokers’ yachts.   He posed the question, “Where are the customers’ yachts?”