They Screamed: “Never Sell Rates!”

I was a member of The CORE Training Program years ago, and it was very effective, as they preached focus, financial discipline, time-blocking, non-stop selling, careful lead-tracking, and accountability (there was no room for BS in any way; you had to share your income tax returns even to back your income claims – which I loved because so many loan officers “embellish” their income).

They also not only preached but they screamed – “NEVER SELL INTEREST RATES!” Sell relationships, sell service, sell ability to close on time, sell value-adds after close, but never, ever, ever sell rates!

And … it worked. But, only for a while, because tech-savvy borrowers stopped getting the memo that rates don’t matter.

Agents Now Complaining about Rates

We have cultivated relationships with hundreds of new agents this year in multiple states, and one of the main reasons is because we offer low and very transparent interest rates.

Agents are now more aware of rates than ever because their clients complain when agents refer them to lenders with rates that appear to be high.

In fact, one of our more successful marketing campaigns to agents simply illuminated our interest rates and why rates matter so much now.

5 Reasons Why Interest Rates Matter So Much More Nowadays

I touch on this topic often but am hitting it again because of the misconception a lot of people have about the fat margins in the mortgage industry and how easy it might be to “jump into the mortgage pool” (a reference to the blog I wrote ten days ago about real estate offices wanting to jump into mortgages).

We quote every loan as thin as we possibly can – with the goal of simply not losing money in a hyper-competitive market. When we get beat on rate, it is often simply because another lender is quite literally willing to lose money, as it is very unlikely that they have lower costs or better loan products than we have. So, once again, if we had to pay a 1/2% referral fee to anyone, that would increase the rate by 1/8% and we’d likely lose that borrower.

Here are 5 reasons why rates matter more than ever nowadays:

  1. Internet Access: Ubiquitous internet access allows tech-savvy borrowers to go online and compare rates more easily than ever.
  2. Larger Loan Amounts: Loan amounts have been climbing along with home prices over the years, so higher rates affect payments a lot more than they used to.
  3. Easy to Apply: New technology has made it easier than ever to apply for mortgages – with excellent point-of-sale interfaces and links that collect financial data automatically.
  4. Loans = Commodity: Unfortunately for lenders, many borrowers see mortgages as a commodity, largely ignoring the reviews, service levels, and reputation of the corresponding lender. This was not the case prior to 2008, when borrowers could obtain dozens of different types of mortgages from multiple sources. These mortgages included ARMs of every type as well as a variety of 30-year loans from various investors with a large variance in rates. Today, almost everyone gets a 30-year fixed-rate loan backed by Fannie and Freddie. There are jumbo, FHA, and non-QM exceptions, but those segments are dwarfed by Fannie and Freddie loans.
  5. Excess Capacity/Competition: The mortgage industry is facing its darkest winter ever, as the market has not been this slow since the early 1990s and we still have two or more times the production capacity necessary to close the volume we’re currently seeing. This in turn results in extremely intense competition that borrowers can take advantage of. So, you think you can quote an 1/8% higher rate to a tech-savvy borrower with a $500,000 loan? Think again, as there are hundreds of competitors ready to swoop in to steal that borrower.

This is not to say that I think loans are a commodity – particularly when so many loan files are extremely complex and very difficult to close on time. It is also not to say that many of lenders don’t play misleading rate quote tricks when marketing to borrowers.

It is merely a reminder to agents everywhere that rates matter more than ever, and that will continue to be the case until we see the market heat up (and even that will not have the effect it used to have because of the reasons I set out above).

Meanwhile, if every lender out there is not scrambling for tech and outsourcing solutions that will allow them to be the “low-cost producer,” they are probably not long for this world.

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