double POSITIVE Marketing Group, Inc.

Continued from http://www.doublepositive.com/2011/03/28/the-state-of-the-mortgage-industry-%e2%80%93-part-i/

In my last post, I talked about how the new mandated loan officer compensation structure, coupled with the new comparison Internet advertising structure, are causing the entire mortgage industry to hit the brakes.  Smart people honestly don’t know what to do.  You may not even have a comp plan in place yet, and we’re already coming to the end of the first quarter.  My goal today is to offer some thoughts on how to structure your sales floor to maximize the opportunities, and stay in full growth mode.

Divide and Conquer Your Leadflow

First, I recommend that you change your thinking about the Internet lead market.  See it as being made up of two separate silos: 1) traditional Internet aggregator leads and 2) comparison rate-table leads.

This is a new concept.  When LeadsCouncil and Leads360 recently looked at conversion performance in selecting their 2010 award winners, they blended them all together, which yielded and apples to oranges comparison.  The reason why they are different is obvious.  Rate-table leads will have higher conversions.  The consumer clicks on a rate, and you honor the rate.  Easier sale – but, as I said previously, the margins are thinner.  Conversely, aggregator leads have fatter margins, but there’s a limitation of scale.  That’s why you have to do both to stay in full growth mode.  I am confident that Leads360 and LeadsCouncil will now report those separately in their next set of reports/awards.

Make no mistake.  This new product is a game-changer.  I estimate that marketing budgets are split 75/25 toward aggregator/comparison leads today.  I predict that by 2012, almost half the Internet inventory will be comparison ads, and half will be aggregators.  LendingTree, Quinstreet, and all the aggregators have had to adjust.  In fact, at the LT Summit earlier this month, LendingTree announced that they are bringing out their own comparison rate product, called Loan Explorer.  They knew that they would lose market share if they did not come out with their own product.  Likewise for your company, if you ignore comparison leads, you will limit your scale in your Internet division.

Divide and Conquer Your Sales Culture

Second, I recommend that you break out your sales floor.  You still need folks who are in that aggressive sales mentality every day to handle the traditional aggregator leads.  And now you need a new breed of loan officer, order-takers, to handle rate table leads.  Break up your sales floor to handle the two separately.  Don’t try to bleed them together on the sales floor.  They are two different types of sales, requiring two different sales mentalities.

To me, the most interesting aspect of the rate table product is that it empowers the consumer.  Comparison ads are giving them more control, and making them feel better about the experience.  By accepting these new leads, and fielding them with efficient order-takers, companies can double their loan officer production.  Top performers who traditionally closed eight aggregator leads per month may be able to close 20+ comparison leads per month.

More Efficiencies Available

As I said in my last post, companies looking to stay in full growth mode have an opportunity to trim some fat.  Lay-offs may be inevitable, and some employees will leave voluntarily – especially the aggressive sales professionals who are used to earning high commissions on each sale.  From an operating perspective, companies may be able to reduce overhead by as much as 25% by weeding out low performers, both in sales and operations.

The More Things Change …

One thing to keep in mind.  The industry has not flipped onto is head entirely.  There will always be a place for both traditional Internet lead-buying and comparison advertising, just as there will always be a place for both traditional sales and order-taking.  The companies that separate the two will be the most successful for the rest of 2011, going into 2012.

There is, however, some modicum of normality.  Nobody has a crystal ball, but we can probably expect rates to stay low for a while.  The economy still hasn’t recovered.  It’s true that the re-fi market is drying up, but there are still people are refi-ing every day.  This is the time to be more efficient.

Keep Your Head Up

I want to leave you on a positive note.  A lot is going on in our industry right now.  Some is in your control, and some is not.  We need to see how it all plays out.  But, whatever happens, I know you can handle it.  You have lived through hell the last couple years, fought hard and kept your head up.  I applaud your courage and determination.

At the  Summit earlier this month, I thought LendingTree picked the perfect keynote speaker to wrap-up.  Coach Kush from Boys Town (http://kush.boystown.org/Pages/default.aspx) told the story of how he fielded a team of 28 underprivileged kids, who had never played football, and took them all the way to the state championships.  His motivational speech lit a fire in me that’s still burning.

For all of us, the thing to do now is embrace opportunity.  Grow now, even though it hurts.  Fight now, even though you are tired.  Make adjustments now, and position yourself to win for years to come.

In the aftermath of a really positive experience at LeadsCon 2011 and the LendingTree Summit earlier this month, a lot of folks have become overwhelmed by uncertainty and doubt.  Most everyone in mortgage is worried that high rates and new regulations will blow up their old way of doing business, and they are right.

I want to weigh in on what’s going on and hopefully give some relief.  Not to sugar-coat reality, but to add perspective on new opportunities that you should be taking advantage of.

But first, everybody take a deep breath.  Remember that 2010 was a good year for the industry.  Rates were in the 4s and 5s and a lot of folks experienced growth for the first time in years.  You got your individual reps licensed in-state, did some scaling, got efficient, and hopefully put some money in the bank. 

That momentum carried into January 2011, but when February hit, all hell seemed to break loose.  Interest rates shot up.  Contact rates dipped.  The re-fi market dried up, and the new government regulations on comp loomed closer.  Companies went into panic mode.

Yes, the market is shifting.  Yes, there are challenges.  But there is no reason to panic.  I am confident that if you understand the two major factors driving the shift, and what they do to your business model, you can work them to your benefit. 

The Regulation Factor

As we all know, the new government-mandated Loan Officer compensation structure (“Reg-Z”) goes into effect on April 1.  The impact of this regulation (and another coming in July) is significant.  Companies will be forced to re-invent their sales culture.  Loan officers earning over $150K per year in mortgage compensation is probably a thing of the past.  Now you will be looking to hire $40-60K per year order-takers; maybe even lower than that in some markets.  I would like to see kids coming out of college jump into it as an entry level position where as in years past that did not seem like a possibility.

The Comparison Ad Factor

 The second factor impacting the market shift is the growing adoption of an Internet advertising structure called comparison (or “rate-table”) advertising.  Comparison ads have been around for a little while, but are now scaling rapidly as heavy-hitters such as Google, Zillow.com, Informa and Bankrate are pushing these products as a way for companies to scale their online lead production.

Unlike your traditional aggregator leads from companies like LendingTree, LowerMyBills and Quinstreet, comparison ads allow the consumer to see a rate on the Web, click on the rate, and get directed to the Web page of the company advertising that rate.  If you are a lender, you advertise your rate online.  Like Google Adwords, you know you can bid a low rate and you’ll be on top.  The margin is thin, however.  In most cases you are fighting over as little as .002%.  The competition now is about who can rank higher, and who can turn over more deals.  This is the polar oppose of the aggregator market, where the question is who has the best sales ability.

Harnessing the Changes

The timing of these changes is pretty remarkable.  The new advertising structure, which drives down margins, coincides with the new compensation structure, which drives down overhead.  Almost overnight, mortgage has become a volume-based, not fee-based business.  Winning now is all about high volume, low margin, and turning over more deals.

What does this do to your employees?  Ultimately, we will see some consolidation.  The salesperson used to earning high commissions on every sale will probably go find something else to sell.  From an operations perspective, the shift gives you an opportunity to run your company more efficiently.  For example, let’s say you had a mediocre salesperson last year making $50-60K.  Now you can replace that person with a rate table order-taker at $30K.

The shift allows you to trim some fat, which will help.  But to take full advantage of the new state of the industry, I believe you will need to make deeper philosophic changes.

I’ll talk about those in my next post.  Check back later this week.

Come see Sean, Rich and I at the LendingTree Partner Summit.  We have been working with LendingTree dating back to 2007 and are glad to be one of their top sponsors at this Summit.  Tree is planning on announcing some new ideas and products that will be a huge game changer for them.  I will also  be speaking about the Hot Transfer Partnership that we have built over the last couple years.  Hope to see you there at the brand new Cosmopolitan.

http://www.lendingtreesummit.com/