October 2016

Mortgage Companies: Michael Sema Uncovers The Real Issues

Mortgage Companies: Michael Sema Uncovers The Real Issues

By Michael Sema, CEO of Get A Rate

A New Take On The American Dream Of Buying A Home  

The American Dream of being a homeowner could be one of two things:

  • An incredible accomplishment or
  • An absolute nightmare

Unfortunately, it’s a decision millions of Americans regret making every year, and it’s all because they trusted the wrong team of professionals to guide, teach and help them throughout the process.

Most homebuyers wouldn’t know how to begin selecting the right team of pros because of how the mortgage industry currently works.  I’m going to discuss:

  1. The “Typical” Homebuyer Experience & Why It’s Difficult To Get Unbiased Advice
  2. Explain Other Mortgage Companies’ Structure To Reveal The Real Issues, and
  3. Share the Get A Rate difference – why and how we broke out of the mortgage mold

The Typical Home Buying Process & Why It’s Not Helpful

Homebuyers should begin with understanding their financial situation, goals, wants, and needs.  

But how do they know what they want?  How could they prepare for something they’ve never done before? How do they even know what type of home to buy or how much of a home they should buy?  And where do they start to figure all of this out?  

Typically, someone would start by Googling “steps to buying a home”. Google then shows lead generating sites that ask for someone’s personal information to sell it to the highest bidder.

It will show realtor sites that talk about the benefits of owning a home and why you should call a real estate agent for help and also mortgage companies that’ll tell someone to get pre-qualified before anything else.

A pre-qualification, by the way, does not mean as much as a pre-approval because pre-qualifications aren’t reviewed by an underwriting team who verify the financials submitted.

After doing research, most first time home buyers would then search for homes online, call or be called by a real estate agent that popped up in their search.

What they should really do first is call a mortgage company because they should know how much they can truly afford before house hunting.

However, picking the right mortgage company to provide unbiased advice, especially for first time home buyers, isn’t as simple as it seems.  

Mortgage companies typically focus all of their efforts and financial investments on their front-end sales force to sell their services and market their products.

This strategy doesn’t work in a homebuyer’s favor, but to understand why, here’s an explanation of how mortgage companies operate.  

Other Mortgage Companies’ Structure & Revealing The Real Issue

The two principal parts of a mortgage company are the:

  • Back-End Operations and
  • Front-End Sales Force

The back-end operations consists of openers, processors, underwriters, closers, compliance managers and more.

Typically they are salaried employees who tirelessly work long hours, handle 85% of a mortgage transaction and only receive a fraction of the payout with almost no appreciation or credit.

The front-end operations of a typical mortgage company consist of a sales force, who still to this day are compensated by an outdated commission based structure.  

What’s unfortunate is that the sales force contributes to only 15% of the workload in completing a mortgage transaction, and yet they reap almost all of the rewards and credit.

This outdated lending approach has been proven to fail for decades because it continues to follow the old school methodology of incentivising volume production with financial rewards (an extrinsic motivator).

Not only does this hurt clients but it crippled our economy in 2008.

So why do mortgage companies still use the mechanistic reward and punishment approach? It’s because they believe that it’s the only way to motivate employees to work harder and produce for the company.  

Operating a mortgage company under these assumptions does not enhance thinking, improve moral, or boost client retention but actually inhibits these results. The belief of motivating people through financial incentives, gifts, bonuses and commission to produce more is not only wrong, but irresponsible.   

This is not an opinion but a fact.  

Top economists like Duke’s Dan Ariely and studies done by the Federal Reserve and The London School of Business have concluded that larger rewards result in poorer performance when it comes to rudimentary cognitive skills (Large Stakes & Big Mistakes).

The tasks faced by mortgage companies or loan originators across the country are not elementary. Rules are complex, and responsibilities are high and yet they still follow behaviors, which science has proven doesn’t work.

This means homebuyers get affected the most because the front-end sales force may focus on monetary rewards instead of educating and protecting homebuyers, who are making the biggest financial decision of their lives. Until now.

Our Difference: How Get A Rate Broke Out Of The Mortgage Mold

Get A Rate has a whole new approach to lending, which has removed the need for a sales force entirely. Our company model emphasizes an optimal client experience, which is accomplished by having highly motivated and valued talent, robust tools and systems, and a suite of competitive products.

We have eliminated the front-end sales force and replaced it with non-commissioned salaried home loan advisors. Our genuine and unbiased advice guides, protect, and empowers home buyers to make the right decisions. And the only way to do so is by guiding, protecting, believing, and investing in our team members first.  

Our team is compensated based on their level of responsibilities and quality of service, not their production. We achieve this by capping the quantity of business each employee handles to protect the integrity of their workload and the client’s experience.   

Our employees are motivated by intrinsic factors such as purpose, autonomy, mastery, and mission. We enjoy helping our clients with their goal of affordable homeownership because we understand it is one of the most important decisions of their lives. What we do matters. It’s interesting and we know we’re a part of something bigger than ourselves.

We do not:  

  • Ignore studies on social science of human motivation;
  • Follow outdated systems;
  • Operate through assumptions;
  • Believe in sales;
  • Support extrinsic motivating factors like commission, bonuses or gifts.

What we believe in is honesty, excellence, integrity, and innovation.

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