In yesterday’s posting, I talked about the real situation all lenders face right now, which is balancing the cost of compliance with the needs of the bottom line. If you missed that posting you can find it on our blog.
As lenders begin to evolve with new business practices prompted by new regulation, they are finding their bottom line eroding. When this happens in any business there are varying ways to handle that.
Cut Costs Severely-This is not always the best option as it leaves your staff over-worked, and underpaid which leads to high employee attrition.
Bring on More Production to Offset the Cost-Recruiting costs money so your return on investment is not seen immediately. Additionally, this added stress of quickly on-boarding production versus sustained growth can add strain to your system, and add compliance costs. Adding production is a great growth strategy, but it should be done in a controlled manner to avoid a multitude of issues.
Sell Your Company because the Overhead is Too High-That’s just sad!
Or, My Favorite-Look for Where You Are Leaving Money on the Table!
The development of these models started as the basis for a great fair lending program.
The results turned into a great fair lending program and a great boost to the bottom line!
The models that I am going to discuss were created by my company to assist two of my clients who are large national lenders. They work just as well for them, as they do for any size company. The money that these models churn back to your bottom line more than pays for the cost of compliance.
What Happened to the Potential Borrowers?
My first question in solving the bottom line issue is this “What happens to the leads/phone calls/referrals that your originators receive, when you are unable to assist the client with financing at this time?
Generally, I get a shrug of the shoulders and responses like “I don’t know” or “I guess they go elsewhere”, or “I suppose they wait until they have done some of the recommendations I made to them”.
My next step is to do an analysis of just one average branch. While I cannot give you all of my secrets for free, the bottom line is this. I discuss the number of referrals/leads that come into the originators and we figure out a pretty good number of “lost potential clients”, who are not ready to buy a home yet. Now remember, it is scary for most potential buyers or refinance candidates to call a lender. No one wants to feel like they are unworthy! So if they are interested in buying or refinancing, but are not ready yet, that doesn’t take away their dream. What kills their dream is hearing “no” and not getting any guidance on what they need to do to make that dream happen.
Once we have agreed upon a reasonable number of lost opportunities, we monetize that by taking the average loan income for the branch x the number of lost opportunities per year. If you do this in your own shop, be prepared to get ill in the stomach as the number is staggering! Now if you are a large lender like my clients and you multiply that out by the number of branches that they have, you really get ill when you see the lost revenue!
Yeah…..but they don’t qualify so why does this matter?
Aha! You are quite perceptive. After all, these number represent a pool of clients that cannot get financing and therefore they cannot be income, right? Wrong!
What I was able to figure out is the average % of clients that eventually become buyers if put into the proper incubation protocol. This turned a high number of these “not ready yet” to “ready”. If you have no protocol, or a protocol that doesn’t work well, you lose these buyers. If you have a well-functioning protocol, then you retain a percentage of these clients and this turns into income!
The bottom line from this protocol is that within less than 3 months, the branches were doing two things better:
- Their income began to improve, because they did not lose a potential client they worked so hard to get in the first place.
- Their fair lending statistics improved dramatically, and the examiners liked the model because it showed responsible lending.
Don’t miss the final posting in this series which is my second model for lost revenue! Stay Tuned!
If this has you intrigued, I welcome a phone call from you. I’ll bet you are leaving money on the table and I am happy to help you find it!