The Consultative Approach . . . .
It Proves One Size Doesn't Fit All

By Craig S. Loe

I recently accessed the Intuit (publisher of Quicken) website and read the "Customer Champion" section of the chairman's letter located within its online 1997 annual report. Included was a story about an Intuit employee who shopped his auto insurance and discovered that the range of premium quotes differed by $1,000 from the lowest to the highest. The story goes on to say that the employee decided upon a quote that was $700 less than the highest offered and that he didn't opt for the lowest quote because he wanted an insurer known for "Service." This chairman's letter then touted the available services through Quicken including "Mortgages" and Quicken's position as the "Objective Source."

Fast forward to the Orange County Register's February 8, 1998 business section and the article entitled "Taking a Gamble on DiTech." The article compared the costs associated with obtaining a loan from DiTech with other lenders in the Southern California marketplace. It concluded that the fees charged by DiTech were "higher than average" in spite of the company's claims of providing "wholesale rates to the public". The article described a 23 year-old DiTech "customer service representative" (they have no loan officers) who, six months ago, was a grocery store checker with a one week "crash course" fielding up to 40 calls per day from prospective borrowers. The article went on to quote founder J. Paul Reddam, "We're not going to sit down and have coffee with the borrower while discussing their loan," he said. "We're geared to a more sophisticated borrower."

These are just two examples that help illustrate the principles upon which Art Alvarez and I founded MortgageWorks, Inc. (Irvine, California) which emphasizes a personal, consultative approach to mortgage lending. We do not believe that the mortgage process is as simple as knowing the make and model of your automobile or that the appropriate mortgage products can be delivered by technicians with one week of training. Instead we believe that the consultative approach we prescribe for our loan consultants aids in their ability to be objective with regard to loan products recommended. We use laptop technology and point of sale software to enhance the relationship that develops between the loan consultant and the borrower. We pride ourselves on maintaining an excellent reputation for professional, highly trained loan consultants dedicated to individual productivity and self-improvement.

Mr. Alvarez and I have 41 years combined experience in the mortgage business and previously held management positions with Commercial banks and mortgage banks with a national presence. More recently we managed a medium sized West Coast regional mortgage banker that was acquired by a Federally Chartered Savings Bank in December 1995. By October 1997 the Savings Bank decided to exit the traditional branch office retail loan origination platform and concentrate on loan originations through a call center strategy. As a result we were out of a job. We then set out to design the optimum environment for residential loan originations. "We still believe the process of borrowing money for the purchase or refinance of a home involves gathering and understanding far more information than the average borrower is capable of, or willing to do," said Alvarez. "Our loan consultants have a fundamental understanding of the intricacies of personal financial statements and are able to analyze, with the borrower, the best loan solution for any particular situation. Frankly, we are the antithesis of 'one size fits all.' "

We concede that a small but growing percentage of the population avails itself of alternative like Internet loan products and "Loan by Phone" call centers. But Alvarez bristles at the suggestion that objectivity is only possible in an online marketplace, as Quicken claims. A glance at the Quicken Mortgage website also reveals suggestions that mortgage brokers use a "favored group of lenders" and further, that they actually "stand between the borrower and information they need" and are "not obligated to fund at the lowest rate."

"The reality is that Quicken has acknowledged that they are using the mortgage broker business model in establishing themselves in the mortgage marketplace," said Alvarez. With a short list of lenders being offered, the label "favored lenders" could also be applied to Quicken's approach, particularly when you consider those lenders compensate Intuit, not the borrowers who access their site.

"The point is that we should not confuse objectivity with alternative delivery mechanisms to serve mortgage customers," noted Alvarez. "A consultative, technologically enhanced company with a long-term external focus on the customer must be objective if it is to be profitable and survive."

Many people believed Costco/Price Club was going to run the traditional grocery stores out of business a few years ago. What we learned was not everyone wants to purchase a gallon of mayonnaise or wants to track down their own boxes to take their groceries home. Traditional retailers differentiated themselves by emphasizing service and quality. Fundamentally, we believe borrowers want choices and they want to have confidence that the provider of the mortgage loan is experienced and knowledgeable. Also, our borrowers' lifestyles don't lend themselves to spending hours and hours investigating the available loan products and processing their own loans. Most of them are tying to figure out how to find the time to take in their child's soccer game.

Recently, a borrower approached us with questions about a refinance transaction that was started with another lender as the result of a direct mail marketing campaign for FHA Streamline refinances. The individual purchased his home over 10 years ago and never refinanced his original FHA purchase loan. Because he was attracted by the direct mail promise of no out of pocket expense and a simple way to lower his rate, he believed that an FHA Streamline was a good way to go. The lender never offered any alternative to the FHA Streamline. After a conversation with one of our loan consultants, it was explained to the borrower that his current LTV Ratio was approximately 60 percent and that with his FICO score over 700, he qualified for a conventional loan at a much lower overall APR without the costly FHA Mortgage Insurance Premium. The conclusion to pursue the conventional refinance came only after a personal meeting in the borrower's home, a review of his loan documents for his existing mortgage, and an in-file credit check as well as a computerized validation of property values in the borrower's neighborhood.

A company based on the consultative approach is grounded in the belief that the average consumer is not equipped with enough knowledge or information to delve into the complex world of mortgage finance. We are approved to offer FHA, VA, and conventional loan products with a full complement of "A paper" and subprime programs. Reflecting upon my recent review of a particular wholesale lender's 27-page rate sheet, it continues to be evident that with the myriad of mortgage products available today, the migration toward risk-based pricing, and the available options for things like private mortgage insurance, how can we as an industry expect the average consumer to navigate on his own through this minefield and make the most appropriate choice? By spending time with the borrowers, earning their trust, and analyzing and understanding their unique financial situations, we are able to make recommendations that our customers value and to which they subscribe. We shouldn't look at providing a mortgage loan as a transaction but as a part of a continuing relationship with the borrower.