By David Savage
The 2015 market ushers in a great opportunity for families to use the mortgage to help achieve personal lifestyle and financial goals. Borrowers have many different reasons for obtaining a new mortgage. From a first time home purchase, to taking advantage of new affordable mortgage insurance (MI) options, record low rates are leading to the most inexpensive borrowing in decades.
For many, buying and refinancing a home is one of the most important financial decisions they will make in their lives. Regrettably, for families coast to coast, closing a home loan is far more stressful than it needs to be. Confusion and misinformation lead many families to miss the mortgage opportunity of today.
On August 1st, the new TILA-RESPA Integrated Disclosure Rule compliance changes require every professional to discuss the total cost of each loan option over time. This change represents an opportunity for innovative and values-based lenders to deliver a great brand and customer experience. Importantly, helping to educate consumers and realtors can easily be a competitive advantage, leading to faster commitments and guaranteed referrals.
Over the past 15 years, I have taught tens of thousands of professionals how to deliver a total cost analysis for mortgage options. Now, a small part of this conversation is required in every loan comparison, and leadership from every lender can benefit from a plan. The leading lender executives I speak with have two primary concerns: 1) the closing process will be complicated and delayed, and 2) it will be difficult for loan officers to confidently disclose cost over five years and TIP (total interest paid) to borrowers.
The Consumer Financial Protection Bureau’s (CFPB) new requirements for mortgage professionals to disclose the total cost over five years is, without question, a career highlight for me and the entire Mortgage Coach community of professionals. As CEO of Mortgage Coach, I have been asked numerous times to delete or provide an option to turn off the Total Cost over time feature. While this might seem like a minor calculation, comparing loan options by the total cost over five years is not just simple math. Since the beginning of the mortgage industry, both borrowers and loan officers have been programmed to shop and negotiate for the lowest monthly payment and for the lowest transaction cost for a mortgage. Typical loan officers are conditioned to sell the lowest rate and lowest monthly payment. Now, they are going to be required to share the actual total cost over five years.
The Total Cost conversation will not be simple and easy for most loan officers. They will struggle, they will lack confidence when explaining total cost over time, and they will have difficulty attempting to explain and justify the misunderstandings introduced by the total interest paid (TIP) percentage. The best and most customer-centric mortgage professionals – about 5% of current loan officers – have known for many years that the most valuable way to make a transparent mortgage decision is to compare different loan options based on the total cost over time.
Demonstrating Total Cost over five years is without question the most simple and effective way to help people make a transparent and informed mortgage decision. APR (annual percentage rate) is confusing, and, in many situations, is not as relevant as other loan attributes given most families do not remain in the same home for the life of the loan. The new requirement is the best thing to help ensure every borrower has the context of information to make better mortgage and liability decisions.
To better understand the processes that will support turning these requirements into a competitive advantage, let’s look at a couple of key factors driving the form goals of the CFPB.
Improve Borrower Understanding
The forms themselves have been redrafted to simplify the data to demonstrate a cost-benefit analysis (CBA) used to determine loan options that best meet the needs of the individual borrower. An important new component of the CBA is the ‘benefits and costs’ expressed in monetary terms over a time frame of five years.
However, according to Carl E. Schneider, University of Chicago Law School, “The benefits of mandated disclosure have been notoriously elusive. Financial products are complex, generally for good reasons. Millions and millions of people are only modestly literate, and millions and millions more are financially illiterate. How can they (people/consumers) learn to make good choices through tutorials plastered on fine print forms?” Further, when we look at how the consumer is utilizing technology, Kristin Messerli, Multicultural Consultant, puts it best saying that “technology is the new language of consumers. When you have a customer who speaks Spanish, you provide them with information in Spanish. Today, the majority of consumers speak digital…” Successful processes need to include the digital delivery of the CBA proactively in a format that’s dynamic so the loan officer can provide a brief walk through of the options being viewed, curbing confusion and increasing consumer confidence.
Moreover changes to the definition of what constitutes an application and the CFPB’s final rule (78 Fed.Reg.79730, 79764-67) permitting creditors to sequence the application process and reducing the risk of having to re-disclose, lenders will need to educate and clearly document the sales/rate quote procedures for their loan officers. Formal policies addressing loan quoting oversight and fair lending policy best practices require centralized technology to manage presentations, marketing materials, and even loan officer training. Luckily, innovators like Optimal Blue, Velocify, Motivity, Knowledge Coop, and many other industry Mortgage Coach partners provide solutions to make these new rules create a positive loan production impact.
Better Comparison Shopping
The simplicity of the new integrated disclosure forms support better comparison shopping. The forms, shortened to three pages, can be printed out for each loan option and physically laid out to provide a side-by-side comparison of options. The forms start off highlighting the perceived three pieces of data that are the most important to the consumer; loan amount, interest rate, and monthly P&I (principal and interest). They conclude with a ’comparisons‘ section, encouraging the borrower to compare the total principal, interest, mortgage insurance, and loan costs and principal the borrower will pay off in the first five years with other loans.
Evidenced by the number of consumers who understand what the APR is, I would be hard pressed to put these types of figures in the hands of the consumer to derive any meaningful information to make a confident financing decision. Helping families understand the definition of these terms and supplementing the forms with a presentation of options is all that is needed to avoid a slow commitment from shopping confusion.
Delivering THE Consumer Experience
Agreeably, the ability to simplify how loan options are delivered and viewed and presenting the Total Cost/Benefit of options to every consumer securing financing for their home is a CFPB goal shared by the best lenders. Developing a branded results-oriented business model is trending across top lenders in the nation, and, consequently, lenders are changing the way they once viewed non-business critical technology, defined as anything other than the loan origination system (LOS). Solutions once left to the discretion of loan officers are now becoming integral to the overall brand experience of top lenders. CRM (customer relationship management), lead nurturing, and automated marketing solutions are gaining popularity as every lead and every loyal customer has measurable significance with use of business intelligence (BI) systems like Motivity. BI systems clearly present key indicators affecting the bottom line. Take into consideration that every time a customer is touched during the loan process, the cost of that loan increases.
Filling the gap between lead to application there is a necessary opportunity to set expectations and deliver clear education, most importantly presenting loan options, in a streamlined, modern, and compliant way. A modern consumer experience speaks the language of the consumer: digital. Zillow, Trulia, Move, and Redfin, with over 55.7M monthly mobile visitors, are evidence that homebuyers and borrowers are increasingly comfortable with mobile technology. While a year ago few lenders had taken full advantage of mobile technology, insights from the most respected consulting firms like PricewaterhouseCoopers LLP have undeniable data demonstrating that lenders who do not embrace mobile will underserve a significant portion number of families.
Modern presentation technologies integrate product and pricing engines like Optimal Blue streamlining data input, develop on native iOS and Android to ensure consistent user experiences, and deliver borrower-specific information in a graphical dynamic presentation. Today’s required solutions must offer the opportunity to have compliance leadership oversight into specific presentation details supporting very clear, easy to audit policies, while remaining effective in marketing each lender’s individual brand experience.
As much as processes and technology support workflow are part of a brand experience, it is people who ultimately create successes. Aligning team members with organizational cultures supports individuality, reducing turnaround and the associated costs. Planning and proactive roll-outs of technology, including educating and training, create clear paths to success.
Every lender, CEO, and mortgage executive should ask themselves the following questions:
Do we have the technology to deliver loan options to borrowers in a way that’s consistent and educational?
Have we armed our sales organization with the technology and training to explain total cost over five years and TIP in a way that will help them win business from the competition?
Are we prepared to train your loan officers to do what’s required to take better applications and set better expectations so we don’t have surprises and delays at the closing table?
Do we have the training technology to be a great company?
Do we have a plan that will enable us to train our sales force effectively?
Are we prepared to gain market share because of the new integrated disclosures?
Moreover changes to the definition of what constitutes an application and the CFPB’s final rule (78 Fed.Reg.79730, 79764-67) permitting creditors to sequence the application process and reducing the risk of having to re-disclose, lenders will need to educate and clearly document the sales/rate quote procedures for their loan officers. Formal policies addressing loan quoting oversight and fair lending policy best practices require centralized technology to manage presentations, marketing materials, and even loan officer training. Some commercial vendors, such as Optimal Blue, Velocify, Motivity, and Knowledge Coop, portray features in current products that may ease the difficulties of implementing the new mortgage rule and affect the loan production process positively.
Dave Savage has over twenty-seven years of experience as a mortgage executive, business leader and mobile technology pioneer. As founder of SmartReply, Dave established a leading presence in mobile marketing. By launching Mortgage Coach, he has helped tens of thousands of loan officers and help millions of homeowners make more confident and informed mortgage decisions. Dave is passionate about leveraging mobile technology to reinvent the home buying experience providing advice and education to families nationwide. He can be reached at DSavage@MortgageCoach.Com.
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