When we hear “commodity,” most people think about oranges, crude oil, plywood, or other unspecialized products that are pretty much the same no matter where you buy them, including their prices.
They don’t usually think about mortgages. But that’s what mortgages have become.
Whether you’re a private mortgage broker or the loan officer for a bank, you need to know how to sell a commodity product.
At one time, mortgages weren’t considered commodities. Lenders offered a variety of mortgage products and rates. They had wide latitude to determine how they would sell and process their mortgage applications.
That isn’t the case today. Legislation like the Dodd Frank Wall Street Reform and Consumer Protection Act and government guaranteed loans (FHA, VA, Fannie Mae, Freddie Mac, or USDA) have created reams of restrictions and responsibilities for borrowers and lenders. If the borrower and their property qualify for the loan, they get it under pre-decided terms.
Source: The Federal Reserve (FED)
Prior to the financial crisis in 2008, nearly a third of mortgages originated through independent brokers. Today it’s less than 10%. Most borrowers go straight to the loan officer at their commercial bank or credit union because it doesn’t matter where they get their mortgage. They still end up with the same product.Whether you’re a private mortgage broker or the loan officer for a bank, you need to know how to sell a commodity product. Click To Tweet
Think of it like this: Aluminum is the same wherever you purchase it (assuming you order the same size, quality, cut, etc.). When borrowers take out a mortgage, they get the same product: money lent to buy or refinance a house.
Therefore, when it comes to choosing a mortgage, borrowers tend to focus on price. They want the lowest rate, APR, and closing costs. If the product is the same, it makes sense to buy it from the cheapest source.
But this begs the question: How can mortgage originators grow their sales (by closing more mortgages) if their product is available everywhere at the same price?
Fortunately, salesmen and women have been selling commodity products for ages. But let’s put it in the context of mortgage sales.
In a perfect world, your product would be the undeniable best. It would have better features than your competitors, create more value, and cost the least.
But that isn’t the case. Like we said, mortgage products have been reduced to a narrow lane. You’re basically selling the same product as every other mortgage originator.
When you sell a mortgage, it’s important to take the customer’s focus off the product and onto the value of the service you provide. You have to find methods to deliver the mortgage product that exceed the methods of other originators.
Mortgage expert Robert McLister says it succinctly: “To get a mortgage, though, you have to work with a human being, and that is where the commoditization ends.”
You don’t have to be the best at everything. You just need to find a key differentiator (a competitive advantage, if you will) that separates you from the pack and appeals to your customers.
For instance, if your customers are more price-averse than time-sensitive, they may be willing to wait until market conditions are perfect to save as much money as possible. In this case, processing loans at lightning speed isn’t as valuable as timing them efficiently.
Here’s a powerful tip: Talk to your happiest customers; the ones who won’t stop raving about your service. Ask what they found so valuable about your service that they couldn’t get anywhere else. This could be a key differentiator.
Similarly, you can look to your competitors for a differentiator. What do they lack? Where are they undeserving the market? What feature or benefit do they fail to provide that customers might come to you for?
Borrowers don’t live in your world. Unless they’ve purchased several homes in the past, they’re unfamiliar with the mortgage industry and the borrowing process. They depend on you to ferry them into their new home, but they’re always wrestling with a kernel of anxiety over what they don’t know.
It’s tempting to push them through the process quickly. Expediency is value, right? Not always. If the borrower feels like you’re rushing them into a big commitment they don’t understand, they may worry you’re hiding something.
The best way to position yourself as an expert is to teach them about the mortgage process. Education helps them make the best decisions for themselves. It also relieves their fears so they have a positive experience.
Don’t assume your borrowers know even the most basic financial and mortgage concepts until they demonstrate their knowledge. “Do you want to buy any points?” is a useless question if the borrower doesn’t know what points are or how they affect their loan.
It’s also important to weigh the pros and cons of every product you recommend. They may qualify for a VA Loan with no down payment, but is that the best course? The choice of an FHA loan versus a conventional mortgage may be obvious to you, but your customers want to understand the option, even if they ultimately follow your recommendation.
When potential borrowers or your referral sources start asking about price, you’ll want to change the conversation. Don’t avoid their questions (that’s shifty and unprofessional), but make it clear that prices are essentially uniform because they’re decided by the market.
You should also let them know that mortgage rates aren’t a factor in the qualification process. Whether they get a mortgage is determined by other factors, like their income, debts, and prospective monthly mortgage payment.
After that, move on. Talk about the other ways you add value to the arrangement. How quickly will you process the loan? When can they begin touring homes? Can you put them in touch with any other service providers, like appraisers, inspectors, realtors, or contractors?
Besides, the “We have the best rates” argument is ineffective because everyone uses it. It conditions your customers and referral sources to make decisions based on cost.
The mortgage-backed securities market is a powerful source of information… If you know how to read it. Slight changes in the market (in terms of days, not years) can create substantial savings for your customers.
When mortgage-backed securities (MBS) fall in price, mortgage rates rise to compensate investors for the lower return. When MBS prices rise, mortgage rates fall. (That’s an oversimplification, but you get the idea.)
There are many variables that affect the price of MBS, but there predictable on some level. With the right experience and tools, you can anticipate changing market conditions for your borrowers and referral sources.
How do you weight the MBS market on mortgage prices? Short of quickly gaining 30+ years of mortgage securities experience, you’ll need a tool.
TrueCast MBS is the most accurate and reliable mortgage prediction tool available. It creates high-confidence forecasts of changes in market cycles using proprietary algorithms based on pricing and timing zones.
With a tool like TrueCast MBS, you’ll be able to make highly specific predictions about when your borrowers should lock in their mortgage rates. Your borrowers will enjoy your money-saving expertise in an industry where prices are uniform, and your referral sources will make you their go-to resource.
It’s no secret that selling a commodity product is hard work. Brokers and loan officers who aren’t willing to put in the effort won’t survive in an era of rising mortgage rates. As new rates push some borrowers out of the market, you’ll have to be proactive about collecting and processing leads if you want to maintain – or grow – your income.
The best piece of sales advice we can give is this: Never stop iterating. Experiment with new ideas, techniques, tools, and language. Measure yourself to determine what works. The mortgage industry isn’t new, but that doesn’t mean you can’t be an innovator.