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In the aftermath of a really positive experience at LeadsCon 2011 and the LendingTree Summit earlier this month, a lot of folks have become overwhelmed by uncertainty and doubt.  Most everyone in mortgage is worried that high rates and new regulations will blow up their old way of doing business, and they are right.

I want to weigh in on what’s going on and hopefully give some relief.  Not to sugar-coat reality, but to add perspective on new opportunities that you should be taking advantage of.

But first, everybody take a deep breath.  Remember that 2010 was a good year for the industry.  Rates were in the 4s and 5s and a lot of folks experienced growth for the first time in years.  You got your individual reps licensed in-state, did some scaling, got efficient, and hopefully put some money in the bank. 

That momentum carried into January 2011, but when February hit, all hell seemed to break loose.  Interest rates shot up.  Contact rates dipped.  The re-fi market dried up, and the new government regulations on comp loomed closer.  Companies went into panic mode.

Yes, the market is shifting.  Yes, there are challenges.  But there is no reason to panic.  I am confident that if you understand the two major factors driving the shift, and what they do to your business model, you can work them to your benefit. 

The Regulation Factor

As we all know, the new government-mandated Loan Officer compensation structure (“Reg-Z”) goes into effect on April 1.  The impact of this regulation (and another coming in July) is significant.  Companies will be forced to re-invent their sales culture.  Loan officers earning over $150K per year in mortgage compensation is probably a thing of the past.  Now you will be looking to hire $40-60K per year order-takers; maybe even lower than that in some markets.  I would like to see kids coming out of college jump into it as an entry level position where as in years past that did not seem like a possibility.

The Comparison Ad Factor

 The second factor impacting the market shift is the growing adoption of an Internet advertising structure called comparison (or “rate-table”) advertising.  Comparison ads have been around for a little while, but are now scaling rapidly as heavy-hitters such as Google, Zillow.com, Informa and Bankrate are pushing these products as a way for companies to scale their online lead production.

Unlike your traditional aggregator leads from companies like LendingTree, LowerMyBills and Quinstreet, comparison ads allow the consumer to see a rate on the Web, click on the rate, and get directed to the Web page of the company advertising that rate.  If you are a lender, you advertise your rate online.  Like Google Adwords, you know you can bid a low rate and you’ll be on top.  The margin is thin, however.  In most cases you are fighting over as little as .002%.  The competition now is about who can rank higher, and who can turn over more deals.  This is the polar oppose of the aggregator market, where the question is who has the best sales ability.

Harnessing the Changes

The timing of these changes is pretty remarkable.  The new advertising structure, which drives down margins, coincides with the new compensation structure, which drives down overhead.  Almost overnight, mortgage has become a volume-based, not fee-based business.  Winning now is all about high volume, low margin, and turning over more deals.

What does this do to your employees?  Ultimately, we will see some consolidation.  The salesperson used to earning high commissions on every sale will probably go find something else to sell.  From an operations perspective, the shift gives you an opportunity to run your company more efficiently.  For example, let’s say you had a mediocre salesperson last year making $50-60K.  Now you can replace that person with a rate table order-taker at $30K.

The shift allows you to trim some fat, which will help.  But to take full advantage of the new state of the industry, I believe you will need to make deeper philosophic changes.

I’ll talk about those in my next post.  Check back later this week.