Marketing the “expert” sale

Posted on
Reply
EXPERT

EXPERT (Photo credit: Pete Prodoehl)found photo: business leaders (Photo credit: squareintheteeth)

Mortgage experts like to think of ourselves as professionals, that is, providing a value added service to the business of helping our clients get mortgage financing for their homes and businesses. Most spend a lot of time in professional development, learning new skills , keeping up with the changing face of the mortgage loan industry, and keeping an eye on the constantly evolving economic reality faced every day by our borrowers (and our lenders).

But many of the people who work in our industry, if pressed, would agree that the single most challenging aspect of our work is ensuring that we have a sufficient flow of new business opportunities, so that we don’t run out of clients just about the time we become knowledgeable enough to be of real service to them.

Somehow the idea of prospecting for new business seems incongruent with being a professional adviser, a little like getting our hands dirty when we really want to seem to be above the fray, and beyond the need to market ourselves and our services.

Far from it! Getting out there in front of people and winning their attention is precisely the mark of a professional. A true professional knows that he/she has something valuable to share with the borrowing public, and that the public will never get the benefit of that value if he/she doesn’t grab their attention.

So it’s not that professionals shouldn’t promote themselves, or market themselves aggressively. But rather how they should do so, rather than if they should.

So here are a few points to improve both effectiveness and the professionalism of your marketing efforts:

1. Share your skills, knowledge and ability freely with potential clients. As mortgage experts we know a lot about mortgages, financial planning and debt. Most of the time the only time we talk to potential clients is when they are looking to buy a house or mortgage a property. In order to be the expert relied up at decision time, you need to be the adviser they trust in regards to these subjects even prior to the need being expressed. Instead of sending out messages asking for business to your potential marketplace, try asking people how you can help them meet their goals through what you know and do.

2. Become a genuine expert on your potential client. It is more important than ever to know your client. Inside and Outside. Front to Back. Lenders will tell you that it is important because then your applications are far more likely to be funded, because you will provide accurate and sufficient information for a lender to make a mortgage loan offer to your client. It will improve your credibility with your lenders as well, as you become a mortgage expert they know that they can rely upon. You will make it worthwhile for them to invest the time and money in underwriting your deals. Even more definitely, however, knowing your client will prove to that client that you actually care enough about them to give them comprehensive and caring advice. They will know that you aren’t just plugging applications into the system and hoping for the best.

3. Don’t hesitate to reach out to new prospects. In fact, dedicate a real part of your day every single day to reaching a specified number of new prospective clients, and then adding them to your database of people who know you as a mortgage professional. When I was a young man just learning the ropes in the life insurance business, more than thirty years ago, my sales manager insisted that I make 25 telephone calls every single day, before noon, and not quit calling new prospects until I had made at least 2 appointments to meet with potential clients.

4. Educate. Educate. Educate. Provide resources and important information to your prospective clients, on subjects they want to know more about. How do you know what they want to know more about? Ask them. And then do your homework to give them information that helps them make their goals. Every time you make yourself useful to someone else, you gain their respect and likely, their future business.

Front Door

There's no place like home?

BFS and Stated Income Mortgages. Oh My God!

Quote

Posted on
Reply
Genworth Financial Headquarters

Genworth Financial Headquarters (Photo credit: taber andrew) “Hello everyone, FirstLine will no longer accept new applications for stated income programs effective end of today also max loan amount is $1 million,” reads an email penned by one of the lender’s BDMs and sent to brokers Tuesday afternoon. “if you have any deals you need to send please do so by the end of today, FYI Brand-to-Brand is NOT affected.” Many other affected FirstLine products are: New Immigrant programs, non-Immigrant programs, equity programs (flex), Access low-doc programs, CMHC self-employed simplified program, Genworth Alt-A program, Canada Guaranty low-doc programs, Canada Guaranty Lifestyle Advantage and self-employed program.*Employment ExhibitionImage via Wikipedia

A few weeks ago I wrote about BFS and Stated-income mortgages, and a new paradigm arising where such mortgages are becoming more and more difficult to get. Well this week another lender, First Line, has vacated the business effective February 1st, 2012.

It’s beginning to feel like 2009 all over again, when HSBC withdrew from the broker channel, and the government began to redefine the basis on which mortgages would be written in the future by insured lenders. It feels like the 80′s all over again. Back in the day BFS and stated-income borrowers basically knew that they had to come up with substantially larger down payments than salaried employees, keep up better credit scores, and even then, pay higher interest rates. Many mortgages could only be obtained from private lenders willing to lend without insurance, at the higher rates.

Perhaps we are going back to those times again.

I don’t think it will last indefinitely, but the reasons aren’t necessarily obvious. At least, unless people think it through. What percentage of the job market was made up of self-employed business for self types in the 1980′s and how much today. If the banks abandon self-employed people today, they may find themselves out of luck tomorrow, when those people have found alternatives to dealing with them.

* CMP magazine article Vernon Clement Jones, 31/01/12.       

BC Population Trends Upward – A Buying Signal

Posted on
Reply

A study published by the BC government called the Overview of the BC and Regional Population Projections 2011 to 2036 should be required reading for anyone prior to seriously discussing economic trends related to BC Housing or Social Service provisioning looking forward over the next twenty-five years.

English: View of downtown Vancouver from the L...

Image via Wikipedia

http://www.bcstats.give.bc.ca/data.pop/popstart.asp  Information contained in the stats reinforces a message being promoted by BC Real Estate and Mortgage professionals – BC is a great place to make an investment in housing!  And it’s not based on something ephemeral , but rather on the fundamental nature of population trends in BC combined with business and employment opportunities anticipated for the next twenty-five years or so.

The largest determinant in the future price of housing, over both the short and long terms, is population growth, decline or flatline.   While narrow and temporary local conditions have significance, perhaps even more significant than population growth, in the short-term, over the longer term trends in population dominate.  Therefore, it is important to understand the trends in population growth and locality of that growth in British Columbia regions over the next twenty-five years, as well as over the next year or two.

Another important determinant of the price and value of housing is the growth or decline in employment opportunities in a community as well as an understanding the demographic nature of a community as it evolves over time.  For example, it is well understood that the percentage of seniors over 65 is growing in BC, everywhere, but even more dramatically in communities with slower growth rates or declining populations, such as the Stikine in the north and the northern Vancouver/Mount Waddington areas.  Those two areas are continuing a trend seen over the past twenty years in BC where populations in remote areas are declining, and people moving to the urban areas in South Western BC.

It is also important to take into account economic factors such as the underlying driving force for growth in the region.  According to many economists with and without the province, economic growth over the long-term is bolstered by an increasingly international urban landscape with extremely diversified economic activity, combined with continuing growth and strength in the resource extraction and lumber industry in the hinterlands of the province.  Natural Gas and Oil continue to progress in the northeast corner of the province, with strong job growth expected in various communities with new mines, oil and gas wells.

Downtown Vancouver

Image via Wikipedia

Here are some projections for people thinking about buying real estate in BC over the next year or two.

  1. Growth in BC will continue for the next twenty-five years at its current rate or greater – 1.4% to 1.7% per year.  In other words… more than 60,000 people per year, net of people leaving or dying, are moving here.
  2. Populations are continuing to be more and more urban in BC, with remote areas of the province declining both in population and in working age employment.  Slowly declining areas of the province will become a bigger factor in government spending, as rural remote communities generate less and less income to the province while requiring significantly increased resources, particularly in hospitals and seniors care.
  3. Housing will continue increasing in price in urban BC, particularly Greater Vancouver, the Fraser Valley, Nanaimo to the Comox Valley, and parts of the Okanagan at rates greater than the inflation rate for the period in question, based on demand driven by immigration of largely working age families to those areas largely from international centres in China, Southeast Asia, and India.  Like it or not, it’s not actually going to get cheaper to buy in the future than it is in the present, unless you want to buy on the North Island or north coast of the Province.
  4. Downtown Vancouver, Burnaby, Richmond, North and West Vancouver will increase in price more than the rest of urbanized BC for a number of reasons including substantial increases in job opportunities in manufacturing, continued interest by buyers from China, in particular, and concentration of multiple family dwelling units.  Highly dense neighbourhoods continue to be preferred over single family areas in the city, in terms of number of units of housing to be built, although single family homes will likely continue to increase in value at a rate greater than multiple family properties.
  5. Rental accommodations will continue to rise in rental income at a rate greater than inflation, with even greater percentage increases in areas currently just outside the high rent districts in downtown Vancouver.   East Vancouver, Richmond, North Vancouver and Burnaby will see substantial increases in rents and declines in available housing.

New paradigm for BFS, Non-income qualified borrowers

Posted on
Reply

Business For Self – A Changing Framework

This program is designed for self-employed borrowers who are unable to provide traditional income verification but have a proven 2-year history of managing their credit and finances responsibly. Eligible borrowers typically own a small size business for a minimum of two years, which can be confirmed via a third-party arms length document. In addition, the borrower is required to declare their annual income, which should be reasonable based on the industry, length of operation and type of business.

http://www.genworth.ca/content/genworth/ca/en/products/product_overviews/business_for_self.html

Brokers have had increasing difficulty in getting BFS clients high ratio insured mortgages from traditional lenders.  Assuming that banks and other mortgage lenders want to lend money, in fact, need to lend money, it seems counter intuitive that they would be making it more and more difficult for the fastest-growing segment of the Canadian economy to get high ratio mortgages.

Given the high cost of housing, it is more and more essential that new home buyers be able to borrow the highest ration mortgage possible, as saving up down payments of 20% is pretty impractical on prices ranging from a minimum of $400,000 in major urban markets.

So what’s with the reported increasing difficulty in obtain BFS mortgages from lenders?

There is an ebb and flow in the mortgage business about lender attitudes, policies and loan practices which profoundly affect a borrower’s ability to get a low-cost mortgage.  During some years, such as during the run-up in prices during 2003-2007, lenders became more and more flexible in being willing to give BFS clients with high ratio mortgages at their best rates.  Since 2007 the rules have tightened up considerably, so much so that many self-employed business professionals are finding it almost impossible to buy and new home, or even to refinance an existing mortgage originally acquired during the run-up.

There are many opinions about why this is so, but the reality is that when things are booming, everybody, including bankers and mortgage lenders, is more comfortable with the risks associated with lending to non-traditional borrowers.  There is a sense that if they make a mistake, then the marketplace will correct it, by allowing for the sale of the property for an increased value enough to bail out the lender from most “mistakes.”

When the economic future is unsure, or at the end of a long run-up in prices, people become concerned that prices could fall, and lenders could be caught short if they have to foreclose on a property.  Thus in uncertain times the rules on the granting of mortgages tighten up considerably, with the government backed insurance provides leading the charge.  Today CMHC doesn’t really even have a Non-Income Qualified insurance product for high ratio loans, having tightened the rules sufficiently as to make it almost impossible for anyone who cannot prove enough income to qualify for such a loan at all. There is still an insurance program at Genworth, but its application during the past couple of years has become more and more strictly administered, with a similar outcome for many potential borrowers.

So what is the self-employed person to do?  How do I get the financing I need?

  1. Think and plan ahead – Research the relevant rules and requirements with a mortgage professional well ahead of when you need to get a mortgage.  Preparation is half the battle.  For example, if you need to give 2 years Notices of Assessment from Canada Revenue Agency, it might be a good idea to make sure that you have filed and paid your taxes before you apply for a mortgage.  This also applies if you make your living from commissions, where you get to deduct your expenses from your income.
  2.  Have realistic expectations – If you are going to have to come up with 15% down, which is more and more the case, it’d be a good idea to know this in advance, and plan to have more cash on hand than might have previously been necessary.
  3. Check you credit report.  It takes quite a bit of time to fix bad or poor credit.  Even if you have a credit rating at the lower end of what the mortgage insurance companies need you may find yourself having to come up with a larger down-payment, or get qualified for a lower dollar amount than you need.  Generally it is good advice to review your credit report with your broker at least six months ahead of applying to purchase a home, or apply for refinancing your existing mortgage with a new lender.
  4. Pay down debt before making an offer to buy.  As much as possible as the amount of consumer debt direct effects how much you can borrower on your mortgage.  Put off the new car and new furniture until AFTER you have moved into your new home, or AFTER you have refinanced your mortgage.

Nothing you do will bring back the days of the high ratio no income mortgages available in the last decade, but a little work with your mortgage broker in advance can prepare you for the best alternatives that are available.

Self employed borrowers – Genworth:

  • One (1) form of written third party documentation confirming self-employment tenure for at least two (2) years must be on file
  • Lender is required to capture the borrower’s “Stated” income and submit to Genworth as part of the application.
  • The “Stated” income should be reasonable based on the type and size of the business, and should be able to service the required mortgage as per the GDS/TDS Guidelines above
  • Reasonableness of the borrower receiving this income is a critical factor in the approval of the loan as is the borrower’s ability to service the loan and all other obligations

Real Estate Investing – Pitfalls and Pratfalls

Gallery

Posted on
Front Door

This gallery contains 2 photos.

One of the most important lessons I ever learned about real estate investing was also one of my earliest – Don’t buy a real estate investment property if you can’t afford to hold it for the long run. Experts in … Continue reading →

Landlords and Tenants Agree: Market Can’t Fix Itself

Posted on
Reply

Why Public Policy Analysts Can’t Get it Right. Property values and rental markets are subject to competing interests.

In an article by by Jackie Wong, 12 August 2011 in TheTyee.ca: http://thetyee.ca/News/2011/08/12/Rental-Market-Fix/ the author gives her analysis of why affordable housing is largely unavailable in the Metro Vancouver marketplace.

She has no trouble fixing the blame for Vancouver’s razor-thin apartment vacancy rate and seething landlord-tenant conflicts. “Housing patterns are a result of government policy,” she says. “They’re not random outcomes.”

But government policy, she adds, has encouraged a subtle but significant shift in views about rental property — from social good to capital gain opportunity.
Property investors who buy older buildings, refurbish suites and return them to the market at higher rents, Lewis says, “are taking affordable units out of the housing stock, and that’s part of their business plan.”

“People with money are putting their money into property because they don’t trust the stock market anymore,” she says. “You’ve got property values shooting up because there’s people with money, and the people without money just being left behind.”

Of course, Ms. Wong is right about one thing. Housing patterns are a result of government policy, not random outcomes. Her implication is that somehow, however, they are a result of deliberate government policy, rather than being the unanticipated outcome of well intentioned, but ultimately wrong minded, regulations that severely limit the development of new housing in a marketplace like Vancouver’s.

Most economists would agree that the price of housing is a function of a variety of factors, many of which are influenced or controlled by government policy. By government I include municipal, provincial and federal government policies. All levels of government influence the cost and value of real estate.

Federal policies affect housing costs across the country, but the impact of these policies tends to be concentrated in areas of high demand for real estate, such as Vancouver, Toronto, and Montreal. Tax policies which make capital gains tax exempt for residential home owners combine with continuing central bank interest rate policies designed to encourage the growth of the housing economy to push most working Canadians to make their own home their primary capital investment. This has had the effect of increasing and maintaining home ownership rates among Canadians – meaning that most Canadian own their own homes, and see them as repositories of wealth, as well as places to live, in the meantime. In densely populated areas this means that there is intense competition for the limited amount of land available for building.

Believe it or not, there is actually no shortage of land suitable for housing in Canada. Even in the Lower Mainland there is a great deal of land on which housing could be build, but which is kept out of the housing market by government policy. The public often strongly supports these policies, such as land for regional, provincial or national parks, or lands resevered for agricultural use (ALC), or lands restricted from use for future use or to preserve values in the existing marketplace.

The value of land is largely based on its allowed use. Land use is mainly a municipal policy area, with city governments restricting the use of land to specific purposes, including housing and other socially required needs.

In most major cities there are some restrictions on the use of land so that rental properties are maintained as rentals. In BC we have restricted the conversion of rental housing to strata home ownership for years, trying to preserve needed rental housing stock. This limits the conversion of rental housing to strata properties, but it doesn’t restrict the ability of an owner of a rental building from rebuilding the building as a higher level rental building, or simply doing renovations to allow the owner to “get around” restrictions on rent increases imposed by the Provincial government.

Civic zoning laws and building codes are another reason for a shortage of housing of all types.  If governments simply allowed lands to flow to their highest value use, in cities like Vancouver, housing would grow at an even more frantic pace than it has, and in the absence of rent controls and other limits on what landlord can build or charge, there would likely be no shortage of “social” housing.  The problem is that we wouldn’t like the look of the solution, for a variety of reasons, including, and especially that housing built in the absence of zoning, building codes and rental restrictions might very well be dirty, uncomfortable and with very small housing units.

So when analysts say that they want a policy framework that encourages “social” housing or “rental” housing, what they really mean is that they want the government to subsidize that housing to a degree that would allow private interests a sufficient profit to provide housing a substantially less than that housing would be worth otherwise, at the expense, direct or indirect, to the tax payers as a whole.  What they would really like is to see the private developers and owners of the buildings taken out of the picture altogether, with appropriate housing provided by the government directly, either municipal or federal.

Analysts seldom recommend eliminating rental controls, which would be the fastest way to create additional rental housing and keep rents under reasonable levels, because in their view, rent controls are the only thing that allows poor people to stay in their homes at the present time, particularly in places like Vancouver.  The problem is that rent controls keep new developments off the books and prevent the flow of capital into rental markets, because of restrictions of the rates of return that can be earned by the investors in these projects.

It really is a Catch 22.  The solution to one problem is the indirect cause of the same problem.  It’s a vicious circle and one which will take the wisdom of Solomon to figure out.

It’s a Matter of Fairness – Disclosure of Conflicts of Interest

Posted on
Reply

There is a new Form 10 pursuant to the British Columbia Mortgage Brokers Act, issued by the Financial Institutions Commission (FICOM) effective June 2011. This form replaces the existing Form 10 with a much more specific set of disclosures related to conflicts of interest by a broker in relationship to his borrower clients. While the new form, and the discussion paper by FICOM, doesn’t specifically address conflicts of interest related to broker-lender relationships, some of the fundamental principals raised in the discussion paper do.

Why should a consumer care about disclosure regulations, and what exactly is a Conflict of Interest?

Consumers depend on unbiased advice from professionals. One of industry’s dirty little secrets is that most financial advisers, including mortgage brokers, are paid by product or service providers. Most residential mortgage finder’s commissions or fees are paid by lenders, except in those relatively less common situations where a broker directly charges the borrower a fee or commission.

Most of the time, when consumers get a mortgage through a broker, they assume that the broker is making a recommendation based solely on the client’s best interests– in other words, finding consumers the best mortgage for them, regardless of any potential financial benefits to the broker.

While professional mortgage brokers do their utmost to put their own compensation out of their minds when arranging a mortgage, it is a truism that “he who pays the piper calls the tune.” The simple fact that the lenders pay the broker creates a potential Conflict of Interest of sufficient import that regulators (like FICOM in BC) require disclosure of it.

The heart of the conflict of interest is the simple fact that brokers are most often paid by the lender. If all lender’s commission structures were the same or similar, and there were no broker incentives to work with a particular lender, the potential conflict of interest would mostly remain just that – potential. Any conflict of interest would be purely theoretical, since a broker would have no greater motivation to place a mortgage with one lender over another.

However, there are significant differences in compensation types, arrangements and commission amounts between lenders. On a single mortgage loan, a broker may earn anywhere from .25% to 2% of the principal amount as a commission. Various volume and performance bonuses range from 0% to .3% or even .4%. These different types of compensation can also make a huge amount of difference in terms of how much the broker will earn over time from placing mortgages, and the payment by the lender may be in a different form than just cash. Some lenders use points, which can be used for a variety of industry training programs, trips or promotional items. They may even be used to pay down the rate on a particular mortgage in order to offer a more competitive on price for a broker.

This means that deals offered to a client may vary if a broker is willing to forgo some of his commission to reduce the cost of the mortgage. The broker may even use points from previous deals to do this.

Clearly, compensation to brokers from different lenders varies greatly. One thing is common: lenders compensate brokers in order attract their business, and lenders pay brokers a great deal more money to submit the majority of their business to themselves rather than to other lenders. Brokers are strongly incented to place the majority of their loan applications with a small number of lenders in order to maximize their income from volume bonuses and other performance related compensation. Furthermore, if a broker doesn’t submit enough business to a lender over a reasonable period, the lender may well choose to take the broker off his authorized broker list.

A broker may not be able to submit a mortgage to the lender with the best rate, terms or conditions because the broker may not do enough deals in a year with that lender to be on their preferred broker list.

Brokers have a lot more to think about when placing a mortgage loan than simply which lender and which loan to recommend to the borrower. The borrower’s best interest SHOULD always trump any other consideration, including contracts or other considerations with lenders or other parties. Whether client best interest does trump broker self-interest is a matter of professionalism and experience.

The more experienced a broker, the less likely is he or she going to be influenced by lender incentives, at least on a deal by deal basis. This is simply because experience teaches brokers that no particular deal will make or break them financially, and the small amount of financial incentive offered by differential commission structures is insufficient to motivate improper behaviour. However, with increasing pressure from lenders on brokers to place more and more of the business with their preferred lenders, there is unrelenting pressure on brokers to conform to the lenders’ objectives.

What the new Form 10, and underlying policy statement, does, is make the disclosure of potential conflicts of interest more detailed and more fulsome. There are many other potential and real conflicts of interest that FICOM is seeking brokers to disclose on the form, most notably when sub brokers, brokers or their employers have a direct or indirect interest in the lender making the loan. They also require disclosure of all parties receiving compensation for any mortgage, such as a referring agent, co-broker or other party.

I think that the intention of the changes in the FICOM Form 10 and the policy discussion that accompanied that form to the brokers in the industry is good, as far as it goes. It’s really a matter of fairness in the marketplace and the consumer knowing and understanding anything that might influence the advice he or she is getting from their professional. Full disclosure of fees, arrangements and other compensation doesn’t eliminate the potential for conflict of interest or ensure fair treatment of the consumer of mortgage loans. It does, however, help level the playing field and give consumers the ability to ask relevant and penetrating questions about any mortgage loan recommended.