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Industry Commentary

More to Honesty Than Avoiding Fraud


February 19, 2003

When I deliver the sales and marketing section of my mortgage school, I typically start with a description of what everyone needs in order for their marketing efforts to achieve maximum effectiveness. These characteristics are anything but esoteric -- hard work, great attitude, professionalism, asking for the business, etc. Other than attitude, there is no characteristic that is more important and more misunderstood than simple honesty.

Most would say that honesty involves telling the truth and staying on the right side of the law. It is unfortunate that one would have to lecture about such matter -- but this is the mortgage industry. This industry carries enormous fiduciary responsibility without much training and with much pressure for each deal to succeed. If our clients knew how little training most brokers receive, they would be even more nervous than they already are.

But it is not ethics and law where we usually violate standards of honesty. Honesty is more than avoiding mortgage fraud. Honesty is being truthful with ourselves regarding where we need to improve. Remember someone with a bad attitude? Do they usually admit that they have a bad attitude?

Honesty is also not promising more than we can deliver. The secret of sales is to deliver great customer service. The secret of great customer service is to exceed our customer’s expectations. How can we exceed our customer’s expectations when we constantly promise to deliver something that is in doubt?

For example, promising 48-hour approval that happens less than 50% of the time because of the complexity of our customers means that you will exceed your customer’s expectations significantly less than 50% of the time. In addition, advertising the lowest rates that can be achieved only by 5% of our prospects, means that we will start by meeting the expectations of only 5% of our customers. Exceeding their expectations? Almost never.

Honesty is also not proffering advice when we are not qualified. It is interesting that most realtors and clients think that loan officers have economic, financial planning, and other pertinent backgrounds when many times there is no relevant experience, education, or training, and a few states still do not have individual licensing requirements. At least most realtors have to take classes and pass an exam!

Before we entered the industry, there is no way that we thought that we could predict the direction of interest rates. After all, they pay economists hundreds of thousands of dollars annually and they never seem to get the direction of rates correct. On any one day there will be scores of economists predicting lower rates, others predicting no movement, and still others expecting rates to rise. Even the Fed does not typically vote unanimously to change the direction of rates.

After we entered the industry, everyone started asking the same question ,"Where do you think rates are heading?" After hearing this question day after day, we start to believe that we actually understand the dynamics of the markets. Our answer begins to sound something akin to this: "There is a chance that the Fed will be nudging rates higher if it appears that the Iraqi crisis does not have a significant effect upon consumer sentiment. However, if el-Nino stays strong through the summer ..."

All of a sudden we are economic seers and we are spewing major economic analyses. The truth is that we have no idea where rates are headed. If we did, we would be doing something else for a living. People are making decisions as to their economic future based upon our opinions -- whether to purchase or refinance or to lock a loan or float. Even the best advice will be right only 75% of the time. And one time we will get caught in a real mistake -- missing a major market turn. Remember March of 1987?

One-quarter of the time we are giving advice that will affect the most important financial decision a person can make in a lifetime. The relationship damage that will result will far outweigh the positive effects of correct guesses. The truth is that we are not economists (at least most of us are not) and most of us are not certified financial planners or accountants. You are paid to make loans. You are not paid to advise on the future of interest rates.

So honesty is more than staying out of jail. Honesty is not trying to be something that we are not. We must stick to our area of expertise. Many who present themselves as economic experts are not experts in the areas in which they really do need expertise -- such as underwriting guidelines and sales techniques.

Dave Hershman is the author of seven books, including two bestsellers for the Mortgage Bankers Association of America. An advertiser for MortgageDaily.com, Hershman also is a speaker for the mortgage industry and heads www.OriginationPro.com Mortgage School.

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