There’s an important question facing every loan professional today, says Barry Habib, one that strikes to the core of the profession, a fundamental question of identity: “Am I a salesperson or am I an advisor?”
If you’re basically a salesperson in practice (never mind how you might respond to that question), you’re probably not going to survive in the new paradigm, with technology innovations driving rapid changes in the market. You’ll be a dinosaur — and meet their fate — if you can’t offer what home buyers can’t get from an app, said the MBS Highway founder and CEO. And that’s informed counsel to buyers on how to maximize value and how to create wealth.
“I hear so many people say, ‘Well, I never pay attention to the market; I just lock every loan.’ So the more you do things on autopilot that can be replicated, the less important you are. If you are not market knowledgeable or market savvy, an app on a phone can replace you far easier,” Habib said in a discussion with Mortgage Media’s Dave Stevens. “If you have market knowledge, if you can provide meaningful advice and insights, you become more valuable than the app.”
And this concept cannot be overstated. Take note of a recent entrant into the fray, Zillow Group Inc., Habib said — its CEO is Richard Barton, who made his name as the CEO of Expedia — which, Habib said, essentially eliminated the salesperson’s position in the travel industry. There used to be a travel agency on every corner, he said; not so much anymore.
“I mean the millennials listening to this call are saying, ‘What the heck is a travel agent? Isn’t that something on my phone?’” Habib said. “So yeah, there used to be real people who did those jobs, but because of technology they got replaced, because those individuals did not heed the call to change what they were doing. They thought that they were protected, that they could do the same old thing. And there are so many originators thinking that today. What Richard Barton is trying to do — please mark my words — is eliminate your job as an originator.”
Why was Wayne Gretzky “The Great One?”
“He went where the puck was going, not where it was.” And originators need to do the same thing: Look at where the puck is going. “Where it’s going is, you have to be an advisor.” To make the transition to becoming a debt advisor — those who have that knowledge and power “are crushing it today” and “will crush it tomorrow.”
Many of the selling points mortgage professionals have relied on, and expected to gain them more referral sources, don’t necessarily cut it any more, Habib said. Competitive rates, closing quickly — that’s fine, but everybody’s offering that; it doesn’t make you distinctive. Plus – an app will do it better and faster and cheaper. But can you offer insight as to the demographics and real estate opportunity in the environment? About forecasted rates of appreciation? About factors that will play into what is, at heart, a financial decision for the home buyer.
“First of all, show them that you understand the market. Show them the forecast for growth. Show them what the cost of waiting would do, if they waited six months or a year based upon what the forecast is for rates and also based upon what the forecast is for appreciation. Show them the monthly cost. Show them the out of pocket costs. Show them what they’d miss in appreciation and amortization, and now you start to help that real estate agent do a better job in articulating that opportunity. The realtor sells more property, and the home owner gets a better opportunity, and you become much more valuable.”
This is particularly true heading into a slowdown, a recession, given the mixed and often uninformed messages from the media. Say a customer ponders on whether they should be purchasing a home given such circumstances. Habib’s take: “If you look specifically and don’t let the media confuse you, every single recession, the last six recessions we’ve had over the past 50 years, housing has done well. … If you see interest rates drop precipitously, that’s a nice way to increase affordability, and that’s why housing has either been flat or gone up during periods of recession.” Have this conversation with your customer, Habib encouraged: “Just think about creating wealth for your customer and being an advisor instead of a salesperson.”
And that recession? It’s coming fairly soon, he noted. 2019 should continue to be “a reasonably good year,” Habib said — but beyond that he’s got some concerns. The evidence from the bond markets, and the even more reliable gauge that is the unemployment rate, points to a slowdown.
“In our nation’s history, every time the unemployment rate has gone below 4.7 percent, a recession followed about three years later,” he said. “We went below 4.7 percent in 2017, one of the reasons why it prompted us with the timing of about 2020 (to predict a recession). But the unemployment rate itself is an extraordinarily reliable indicator. You would think that you’d get a recession when the unemployment rate is high. It’s exactly the opposite. It’s when the unemployment rate reaches its lowest level and starts to take higher that you have to get your radar up because every time that happens you get a recession.” With rates close to around 4.1-4.2 percent, Habib said he would have his antennae up for that recession within a year.
With a recession, historically, comes a drop in interest rates — sometimes dramatically; Habib points to past eras when interest rates went from 18 to 13 percent. Rates are much lower these days, so we shouldn’t see so dramatic a drop — but there will be a drop, he said. Which means originators need to pay attention and change their strategy: “If rates drop, does that mean that people are going to keep the same mortgage? Or might there be a refinancing opportunity in one to two years?” You may be able to advise them in how best to manage this tremendous asset, how to avoid incurring a lot of closing costs, how to save money. It comes right back to being an advisor.
“This ability to advise becomes extraordinarily important, because that’s what’s going to set us apart,” he said.
And frankly, he noted, every market is a re-fi market, if a mortgage professional is diligent in trying to help the customer maximize their savings and the value of their asset.
“…If you really want to be an asset manager, let’s be real with the customer and say, ‘Hey look, you’re taking shorter term debt, putting it into longer term debt. Let’s make sure it’s the right thing for you so that if you go back to making the payments you were happy making, but take out this new mortgage, and now take out the $800, $900, $1,200 a month you were saving and put it into the new mortgage” guess what the result is?” he said. “… You’re going to wind up paying that mortgage off in 15, 16, 17 years. So now, how old are you today? How old will you be at that time? How good is it going to feel to not have a mortgage payment? What’s that going to mean for your life? And how much more equity do you have? So 17 years from now or 50, what would the mortgage balance have been? Was it 250, 350? And you would have a zero mortgage balance. So now that 250 can go to be used for your kids’ college. It could go for your retirement. It can change your life — and that’s what an advisor does.”
And that’s what’s important, he said: Positioning yourself to be able to provide information and counsel that can truly change people’s lives for the better.
“When you have a great experience, when you’re changing people’s lives and creating wealth, you think they’re going to care about an eighth in rate?” he asked rhetorically. That comes out to $18 a month on a $250,000 loan — 57 cents a day. That’s not going to change anyone’s life. “So why are we battling over an eighth? You know what we really should be thinking about? How can I get your kid through college? How can I help you with retirement? How can I create an extra $250,000? That’s the person I want to do business with.”
Success — survival — in this industry will depend on being willing to put in the work and preparation necessary to be a valuable resource for your customers, to set yourself apart as an advisor who can help them thrive, to save, to maximize their value. And Habib made no bones about it: This takes work. He remembers meeting New England Patriots coach Bill Belichick, who said the team was ready for the next day’s game against the Rams — “We are prepared for 700 different plays that the Rams could throw at us,” the coach had said. “They can only throw 60 plays at us, but we are not going to be surprised. We are prepared. … If the Rams are going to win, they’re going to have to be better than we are because we’re going to put in the work and be prepared.”
The application here for loan originators is obvious for Habib: “Are you prepared to win? Are you going to let somebody who may not be as good as you beat you because they worked harder than you did to be an advisor? Are you in a position as an originator where you could say, ‘I am prepared to win because I’ve put the work in and gotten the tools that will help me do that because it sucks to lose.’”