A price has been put on the potential Fannie and Freddie bailout. The price tag could be as much as $25 billion. It is not a fait accompli, however. Peter R. Orszag, Director of the nonpartisan Congressional Budget Office put the odds at better than half that Fannie and Freddie will not use need any cash. Critics of the bailout maintain that homeowners should be the first to benefit from any taxpayer help. But if it is approved by congress, restoring confidence to investors in the U.S. and internationally is the bailout’s aim.  We will continue to closely watch the developments at Fannie and Freddie along with our mortgage broker and mortgage banker clients.

As a follow-up to yesterday’s post, DoublePositive has dropped another bit of news:  they have started to provide hot-transfer insurance leads.  They are looking for more lead generation companies to work with them.   Here’s an excerpt from their LeadWire newsletter:

“Insurance has been a long journey for us and we have learned a ton along the way. Our Insurance Team has been working night and day on launching the new insurance platform. We have already developed some strategic relationships with several leaders in the Insurance space and they have been vital in helping us get to this next step. We are really excited about the opportunities we see on the horizon and we want to let you in on the action. We are currently looking for suppliers to partner with us in the Insurance vertical. We are looking for leads in all types of Insurance so if you think you will be an appropriate fit, please contact me.”

DoublePositive has announced a bevy of new products aimed at providing increasingly customized hot-transfer leads for their clients.  The new products include:

PositiveExpress ARM – Hot leads facing an ARM reset.

Name-Your-Filters – Hot leads can now be filtered on the fly just as you would filter traditional leads in Leads360.

Name-Your-Script – This is certainly the most premium hot transfer lead availible.  DoublePositive will customize the leads as well as the contact and qualification process, just for your company!

Visit DoublePositive to learn more.

In a post boom world, mortgage lenders have been requiring more borrowers to get private mortgage insurance. During the boom, fewer lenders required insurance from borrowers who would traditionally have needed to purchase it, i.e. borrowers who couldn’t cough up a big enough down payment. During those days of more relaxed lending practices, a piggy back loan was a much more common way for borrowers to come up with a satisfactory down payment. But Piggy Back loans have largely gone the way of the dodo. Concurrently, the amount of mortgages that have PMI have more than doubled in the last year, in part because of the growing number of loans funded by Fannie and Freddie. Fannie and Freddie require PMI if the down payment on the mortgage is not great enough.

Fearing that the worst may be to come in the housing market in terms of foreclosures, Insurers are not eager to write policies that will leave them holding the bag in a withering market. To that end they are classifying ever widening areas in the U.S. as “a declining market”. Critics hold that this broad brush classifying is wreaking havoc on the ability of lenders to qualify loans for borrowers. Insurers maintain that the data that informs these classifications is not precise enough to allow for the exceptional neighborhoods within cities which continue to see growth and increasing real estate values.

What this means for the borrower, is another obstacle to new home ownership. They will be asked to come up with a larger down payment, and pay higher PMI premiums. For the Mortgage Banker, it is more critical than ever to find and qualify the right type of borrowers. The pendulum has swung the other way in terms of lenient lending practices becoming much more conservative.

Negative Amortization (NegAm) Mortgage products are increasingly hot-potato like for the banks. Wachovia has hatched a plan to drop more of these mortgages and look good doing it. They announced today that they are waiving all fees associated with their Pick-A-Pay Products.  It makes them look good, offering an easier way for borrowers to refinance out these loans.  And it reduces their risk that comes from borrowers holding NegAm loans which draining the equity from their homes. With the economy slowing and falling property values, it is crucial that they dump as much of these kinds of mortgages as possible.

It is a savvy move to requalify their customers and get them out of these Option ARMs and into loans that can be underwritten by Fannie and Freddie. Similarly they have announced that they will no longer be offering any mortgage products that will result in Negative Amortization. Wachovia won’t be offering these products anymore, and presumably won’t be buying these as part of mortgage blocks.

Throughout the industry, people have to rethink lending practices and work more closely with borrowers to make sure they can afford their home. From mortgage brokers, who are increasingly turning to lead management software to maximize profits, to banks that are altering their lending practices, the mortgage industry continues to be in flux.

“Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year. We are back to where we were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s.” Yesterday’s Wall Street Journal article started a firestorm of opinion and thoughts amongst my friends and colleagues and I wanted to share it with you. While home prices are at their lowest in the last five years, market saturation is at its highest; no one is buying or selling homes.

I started reaching out people in the industry to chat about the implications of a market where low home prices were not selling and it spawned quite a few responses. Even the guy sitting next to me on the airplane had something to say about it. This seems to be a topic on the tip of every American’s tongue. See what just a few of them had to say: (Note these are not necessarily my opinions but opinions of my peers and past clients in and out of the mortgage industry.)

“Home buyers are irrational – 2 years ago subprime & prime buyers bought second and third homes. Now even prime buyers are not buying in sufficient numbers. Why not? Are they crazy?! Irrational enough to buy in a market driven by a trifecta of poor lending, brokering and buying decisions but now when it makes the most sense to buy, not buying. Just crazy.”

–Anonymous Real Estate Client

“The rich get richer and the poor get poorer. In a restricted liquidity market, the middle to lower class almost always suffers. Credit costs soar for lower FICO holders, while limited purchases and lending leads to incentives for those with ‘prime’ credit. Go to any car dealership this weekend and ‘Prime’ credit holders can buy a car with no money down, $2.99 gas for two years and a $5000 rebate; got bad credit, don’t waste your time.”

–Noel Collins (Myself)

“Banks caused the problem. Bad lending practices caused ancillary markets to collapse. If banks had not lent to borrowers with lower FICO scores or offered brokers the ability to borrow money for 0% down payments we would not be in trouble. In the past, the average down payment needed for a home purchase qualification was at least 10%. Because of the lack of liquidity time shares, rental cars, hotel reservation rates, food costs, restaurants and tourist attractions are failing.”

–Passenger on flight from LA to Phoenix

“The home buyer is at fault. Even subprime buyers obtained a good loan, paid off credit cards and inserted a positive cash flow in their banks. What happened? They spent the money, got new credit cards, bought a new car or home and paid their mortgages late. If they had followed our financial advice they would be able refinance at prime rates even in today’s market.” –

Chris Stone – EDMC – California

“It is the President’s fault. If George W. Bush had lowered interest rates sooner and not hedged his bet on big oil and the Iraq war, the financial industry would not have collapsed.” —

Anonymous Human Resource Director – Mortgage Industry

“Hedge funds and overreaction compounded the problem. If people had not focused on making money during this crisis we would be better off”.

–David Staral – The Staral Group

“Inexperienced loan originators. Many loan officers – I use the word loosely were inexperienced and only learned how to take orders. One bank/broker I talked with said it was fine when lending was like “Clubbing baby seals” but in today’s market a loan originator/agent needs to b a financial EXPERT! – Period! Inexperienced loan originators looking for a quick buck didn’t point our customers in the right direction; they pointed them into their bank account. I cannot reach my agent any longer; he went back to selling cars.”

– Subprime Customer stuck in an ARM

“My agent went bankrupt and is now facing felony charges in Georgia.”

–Failed Mortgage Banker/Broker

How far will the downturn in our economy take us? Some of my more outspoken colleagues say this will only lead to more money making by the richest of the richest and that more needs to be done for the middle and lower classes. Didn’t we take the financial decision making out of the hands of the wealthy and extend it to our poorer peers? Where did that put us? Banks, buyers, Bush—whose fault is it?

Banks are insolvent, foreclosures and REO’s are up 100% this year, and the mortgage Implode-o-meter continues to grow at a frightening rate. Many of us knew that this was coming, the housing bubble had to burst at some point and the industry that has served us all so well has receded a great deal since early 2007. As many have pointed out there continue to be opportunities out there for savvy mortgage companies and the industry that remains in place today is fundamentally stronger and of a higher quality than ever before. There’s been a necessary clear out of the were in it for a quick buck, that cared less about the consumer. The companies that remain today are more ethical, and more focused on efficiency and best practices than ever before. At Leads360, where we are focused on enabling mortgage best practices, in some ways it’s actually been a good thing. We’ve been one of the few companies in the industry to grow during this downturn and the customers that we have lost have not tended to be the ones that were prepared to fully embrace best practice sales efforts.

But the really big question is when will the industry return to what it was? I believe the answer is that the next 6-9 months are going to be very tough (perhaps tougher than the past 9 months), that a rebound will occur in about a year and we’ll likely see a return to a very buoyant mortgage (re-fi) market in mid-2010. I base this view solely upon the forecast ARM reset schedule for the next 3 years (see below; we are currently in month 18). According to this data what we’ve primarily seen over the past year are subprime ARM resets. This has been a key driver of the current foreclosure/subprime crisis. My belief is that given what else is occurring in the macro-financial ecosystem, the non-subprime market is what will drive mortgage company profits for the next decade. Given this the ARM reset schedule suggests a significant upturn in demand for these products, in around 12 months time.So if I am right, or partially right, what should we do now? The answer is probably more of what we have been doing. As an industry we need to continue our relentless focus on the bottom line. Operational efficiency is key to success and this frankly begins and ends with savvy marketing focused on increasing ROI from less spend. Mortgage companies need to focus on the highest return marketing channels of which Internet lead buying (the highest ROI marketing medium) should be a key component. Beyond buying Internet leads, companies should focus on working them effectively to maximize their conversion… to this end anyone without a Lead Management System should consider adopting one.

This post is all about the little things that must happen to make lead management work to its fullest potential. Because we provide software to so many clients we have learned what our most successful clients do to help ease a sales force into using lead management. Like any new investment a new client wants to get into using their lead management system as soon as possible. It’s like any new toy; the first thing that you want to do is start playing with it, completely disregarding the instructions. This goes for MP3 players, bikes, and even software.

Lead management software should be designed to make for the best possible user experience. For any new software, adoption is one of the most significant milestones to success. Without user adoption, sales will continue down the same path or even take a turn for the worse. A piece of software that is easy to use and easy to adopt will often have a bigger impact on a business than a superior program which is either difficult to use or difficult to adopt.

In working with dozens of clients across multiple industries, training managers and branches, and having used various business platforms myself I have found these keys to adoption and success with new software to be universal:

1. Simplify

Befuddling a sales agents with tech-jargon is the fastest way to stalling an implementation. When training clients I always emphasize that a balance is needed between feature reliance and simplicity of use.

The best lead management for a sales agent is the one that requires the least work for them to maintain. With that in mind, keep anything they do not need to see off their plates. For example, if your lead management solution allows users to export leads but you do not want your sales team to have this option, take the option away if at all possible.

2. Manage Expectations

Why are you implementing new software? How much time do you expect sales people to be in it? What is the learning curve? These are all questions you should have answered and, equally important, be prepared to answer to your staff before implementing a change to their process. Fortunately, these may be easily answered:

Why the new software? The obvious answer to this is to increase profits. Usually that is enough, but streamlining work so your sales team can focus on sales, to get a 360-degree view of leads and user activity, and to better understand and track workflow are all good ones, too. But if you boil it down to “common cents,” the sales team will usually fall in line.

Let the sales team know exactly what is expected, including how to use the new software. With that form of direction, you equip them to succeed.

3. Optimize and Refine

Workflow, the process of moving a lead from New to Sold, must be optimized to match what your sales force is capable of. This is the most difficult key time-wise, but the most straight-forward. Before showing lead management software to a sales team, try to have it match your ideal sales process while keeping all variations of the best case scenario and worst case scenario in mind.

For instance, how many/which actions should be available in a given status? The correct answer is however many they can take: no more, no less. Only make available the options that your sales force needs at each step in the sales process. If you have a one-shot-one-kill sales team then by all means, make sure they only need to take one step in lead management to complete their notation of a job well done. If, however, your process requires verification or follow-up, do not include the option of a completed deal at the beginning of the sales cycle. Make sure that at every point sales can do what sales is supposed to and should be able to do. No more, no less.

4. Feedback

One to two weeks into your lead management software rollout, sit down with some sales reps and ask what they want. If you wait much more than two weeks bad habits and a shortcut mentality will set in. Ask before then, they will not have had time to formulate educated opinions. Make sure the actions fit the statuses. Make sure the statuses fit the workflow. Make sure they understand the tools available to them. Your own employees are a valuable resource in optimization, so take advantage of them!

5. Power Users!

This is the most ambiguous point and intentionally so. Make sure that your power users, users that understand and utilize the lead management solution well, train new employees, instead of just the person that happens to sit next to the trainee. Your power user may or may not be someone who uses leads well (i.e. possibly not your best sales representative), rather it is someone who understands how to use the lead management solution as you would like them to use it. It is a manager’s duty to prevent bad habits from being passed from one user to the next by checking on usage through built-in reports.

By being aware of the potential pitfalls of software adoption, you can sidestep the land mines. No one likes taking a broken toy back to the store only to find out that it was their own avoidable mistake that prompted the visit. Just remember that with your lead management software, keep it simple, keep it on point, keep users involved, and keep working your leads.

This post was inspired by a great article written by Sean Hannon this week. In his article, which is focused on understanding investment results, he used this simple chart to illustrate the possible results of an investment (I have reproduced this chart with my own color-coding):

Sean’s point is that you should only feel truly successful about when you have a good outcome that is produced by a good process. If you invest in a stock on a whim and it happens to produce a great return, you should not consider yourself a great investor–you should think of yourself as a lucky gambler. Similarly, if you are using a proven system that works, and you get a bad outcome sometimes, you shouldn’t feel too bad. Over time the right process will produce good outcomes more often then the bad process.

This idea is common across many endeavors where the process to achieving results has a strong “luck” factor. Poker is a great example. If you have the best hand, correctly estimate your odds of winning, and bet big, you will still lose a significant portion of the time. Even a good process can produce bad results, in the same way that a bad process can produce good results.

Building your business to perform requires understanding how process and outcome are correlated in the long term and yet can produce totally inverse results in the short term. During the housing boom, the problem that many mortgage brokers, banks, and direct lenders ran into, was that they used a simplified lens to measure their success. They looked at the world like this:

It’s counter intuitive but the outcome is not sufficient to measure success. Plenty of banks, brokers, and lenders made a killing and subsequently lost their shirts because they were only measuring outcome, not process. Building a good process builds a framework to produce more good outcomes in the future. Building a business around good outcomes often produces a process that will produce fewer good outcomes in the future; it’s self defeating in the long run.

As a company that builds lead management software (LMS), we understand that helping our clients by providing best practices goes a long way towards making them successful in the long run. But beyond that we know we can help our clients by getting them to place an equal or higher value on their process over their immediate outcomes.

Lastly here’s the way that we see the world. :

We see four kinds of businesses. We try to push our clients towards a good process and good outcomes. Yet, we are never satisfied. Every company, across the board, can always be more successful.

The mortgage industry will get better.  In fact, almost everyone agrees that the mortgage industry will improve.  We have heard our President and economists claim our country’s financial health is stable but isn’t that kind of like saying “It can’t get any worse”.   Surely it can’t get worse, could it?  Are we somehow missing the signs of economic improvement?  Are we deaf and blind to the signals and signs of a recovering mortgage industry? 

Maybe we are missing signs of life from the mortgage industry.  For years those of us working in the industry knew the boom would come to an end, but we enjoyed the record revenues while they lasted. Overall there seemed to be little preparation for tough times.  Brokers, lenders, loan officers and everyone else involved accrued little savings and neglected long-term financial preparation.   The rapidity and severity of the meltdown has overwhelmed most institutions within the financial sector.  Wall Street is reeling and bad news it seems is reported almost daily. 

Today, the Saudi government decided hold off increasing oil production.  This will surely drive up the costs of oil.  With gasoline hovering ominously near $4 a gallon and food costs higher than the previous 15 years, recession is on the lips of most financial analysts.   I’ve even heard Jordan Sparks might have a debilitating vocal injury.  How do we keep our chins up when even our American Idol is in dire straits? 

I received my quarterly 401k statement and for the first time since the dot.com bust, lost money in every single category.  The relevance of the mortgage meltdown is finally hitting home.  Ok maybe I’m painting a darker picture then what it really is.  The coming presidential election could change the landscape overnight and save us all from the world wide meltdown, Right?  Well this time I am going to pay attention to the signs and signals. 

It’s time for us to reduce expenses, sell the extra car, put a little bit of money into the savings account and eat out less.  It’s time we all pitched in and started saving more, that might be the only thing that saves our big brothers in the financial industry.  If we all pitch in and save our money we can bail out the credit card companies, credit unions and Wall Street lenders.  Like an errant child who dropped out of college and just needs a parents hug of acceptance and forgiveness, it’s time to hug your Congressman. 

You really don’t need President Bush’s rebate check; send it back to Congress with a note offering thanks for a job well done.  Thanks for leaving us to our own devices.  We got ourselves into this mess; we might be the only ones who can do something about it.