Mortgage loan originators or loan officers if you will, are paid commissions when loans close, no salary, no safety net, no closings, no income. If business is off by 40% in the mortgage industry, then it follows that refinance originators (ROs), are seeing 40% less commission income, a hard pill to swallow. Remember, loan originators are sales people (see: A Look Behind The Curtain: How To Choose A Mortgage Lender), and are programmed to constantly identify and source new business, but the only new business to get when refinancing declines is purchase business. The thing is, mortgage refinance business is easier to find than purchase mortgage business, the big difference being that refinance loans find you, purchase loans you have to go find. This is where things get murky.
Pipeline mix is a management tool used to measure the percentage of loans originated, closed and currently in a pipeline that are purchase loans against the percentage that are refinances. Originators with a higher percentage of purchase loans in the pipeline typically have a network of referral relationships from which their business is sourced. These networks generate purchase mortgage referrals for those originators even in rising interest rate markets.
ROs with refinance heavy pipelines typically do not have networks of referral relationships from which they can source purchase business. When refinancing business fades, they are left to cast their lines into new waters, hoping to lure purchase business from established referral relationships maintained by competing purchase originators. But just how does an RO successfully trespass on a competing originator’s established referral relationship? Price.
Rate and term refinancing is all about lowest rate, fewest fees, cheapest price. ROs launch pricing assaults through advertising, e-mail spam, even old fashioned cold calls, all with below market interest rate headlines that are too shiny to ignore. Realtors, attorneys, financial planners, all referral sources want what is best for their clients and when a great deal is served up, human nature tunes in. Long standing, consistently successful referral relationships will shift to neutral while these new opportunities are vetted for eligibility, availability and lock down. Skinny profit margins are common in the refinance business and ROs can and will legitimately under price a deal and wrestle it away from a cozy referral relationship.
Homebuyers in the right place at the right time have secured great purchase mortgage financing from ROs but finding those legitimate deals may take some savvy shopping. And once the deal is locked down, home-buyers will need to elevate their participation in the loan approval and closing process as ROs are not necessarily guided by mortgage contingency and closing dates set forth in real estate contracts. Approval and closing deadlines are not considerations that get eyeball in the refinancing process, there is no need for or sense of urgency, refinance loans get approved when they get approved and they close when they close. Purchase mortgage loans have contracts with deadlines and consequences attached, mortgage people need to pay attention and meet those deadline dates or else all-parties-to-the transaction unhappiness follows. Purchase-centric mortgage originators are programmed to embrace contingency and closing dates as paramount, ROs not so much, because it is not a practiced element of the refinance business model.
The good news is that increased competition benefits mortgage consumers searching for the best terms available. But be an astute mortgage consumer and filter ROs crafting less than legitimate below market offers that are strong on the draw but not so great on the delivery. In the mortgage business, just like everything else, if it sounds too good to be true, it is, caveat emptor. Mortgage financing is electronic and instantaneous, ask for what is being quoted to be sent to you, let your eyes see what your ears are hearing.
The process for securing mortgage financing can be a mine field for even the most qualified borrowers; but leaving to chance the successful outcome of the application process can be fraught with peril. Vet and choose mortgage people carefully and in all likelihood you will have an uneventful experience and get a great interest rate, maybe even the best interest rate. It may seem like a search for truth, justice and the American Way, but the payoff for time well spent will be money well spent.
There is a difference between shopping for a mortgage and shopping for a rate, the best mortgage may not always have the best rate, and the best rate may not always be the best mortgage. The best mortgage will be the one that delivers what was promised in terms of timing, rate, fees, communication and that great overused promise of customer service. The best rate will deliver the best rate, everything else will be a bonus, so if everything else matters, expand your decision tree to include everything else. The best rate may not seem so great if the moving van is full and the kids are anxious about their new school and the closing date comes and goes without a mortgage approval.
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