Let’s start with how and why AI is used. The “how” is pretty simple. There are multiple AI services available, including ChatGPT, Claude and Jasper. You might already be using Grammarly, which bills itself as a free AI writing assistance tool.

“There are benefits to AI. If you have writer’s block when putting together a social media post on reverse mortgages, this might be a way to break it.”

Once you create an account (many are free), you can teach it to learn your writing style. Simply type in something to the effect, “Do you want to learn how I write?” The prompt is no more complicated than an internet search bar.

Now for the “why.” AI has been publicized as being wickedly smart and a true timesaver due to its ability to learn and grow in the future. There are specific concerns about AI’s use in mortgage and business lending. These include the potential to insert bias in the mortgage process, as well as possible security and privacy risks. The late physicist Stephen Hawking even warned about AI as a would-be threat to humankind, although these existential worries are thankfully not as immediate.

Overly informal

Setting aside these concerns, ChatGPT was given a writing example and a prompt to produce marketing materials on a loan program. The prompt stated, “Using an informal tone and a humorous example, write a social media post about reverse mortgages.” Here’s what the AI tool produced (emojis were removed):

Hey, peeps! Let’s talk about reverse mortgages, or as I like to call ‘em, “The Robin Hood of Mortgages”! Picture this: You’re retired, living it up in your dream house, but your bank account is starting to resemble a dried-up raisin. Reverse mortgages are like that lifeboat you didn’t even know you had!

Here’s the scoop, without the snooze-fest: Instead of sending your hard-earned cash to Mr. Banker every month, the bank sends YOU a check! It’s like they’re saying, “Thanks for being a homeowner; here’s some cash for your troubles!”

Let’s get down to brass tacks with a hilarious example: Meet Aunt Edna. She’s 75, loves her cozy cottage, and is always up for bingo night. But Edna’s wallet is flatter than a pancake, and she’s thinking, “How can I afford more bingo and maybe a fancy hat collection?”

Enter the reverse mortgage! Edna turns her humble abode into a cash cow. The bank coughs up some dough, and she can keep living in her cottage, rent-free, until the cows come home. The best part? Aunt Edna doesn’t have to pay back a dime until she’s sipping her morning coffee in the great bingo hall in the sky.

But before you start dreaming of all the fancy hats you could buy, remember to chat with a mortgage wizard to understand the ins and outs. Reverse mortgages have some twists and turns you need to know about! So there you have it, folks! Reverse mortgages can be your golden ticket to financial freedom in your golden years. Just remember, with great mortgage power comes great mortgage responsibility! #ReverseMortgageWins #CashForLife

Omitted specifics

First, the obvious: Yikes. Among other things, it’s a very rare occasion that one would address older clients as “peeps.” That writing style is more in line with a teenager trapped in high school in 1995 than a professional mortgage originator’s writing style.

That said, there are benefits to AI. If you have writer’s block when putting together a social media post on reverse mortgages, this might be a way to break it. The technology also wrote the post in about 10 seconds. Reportedly, it does learn a user’s writing style as more examples are put in. In the example above, it might not have had enough previous content to match the requested writing style.

There are pitfalls to AI content too. How was it generated? Is it unique content or does it plagiarize a post from elsewhere? If it’s original, who owns the content? A mortgage originator is potentially on the hook from the Consumer Financial Protection Bureau (CFPB) for advertising unsubstantiated content.

It is also incorrect in stating that “Aunt Edna doesn’t have to pay back a dime until she’s sipping her morning coffee in the great bingo hall in the sky.” With a reverse mortgage, if Aunt Edna dies and her spouse is still living, in an eligible circumstance, they get to continue living in the home as their primary residence. The post also doesn’t speak to the fact that Aunt Edna isn’t allowed to convert the home into an investment property. In most situations, if she moves out, the loan becomes due.

What about using AI to produce a shorter post on X, formerly Twitter, to help drum up reverse mortgage interest? The simple prompt of asking ChatGPT to write a Twitter post on reverse mortgages produced this result:

Considering a #ReverseMortgage? It’s like tapping into the hidden treasure chest of your home equity! But remember, with great power comes great responsibility. Before you dive in, consult a financial advisor (sic) and weigh the pros & cons. Your home, your future! #Retirement

Falls a little flat, doesn’t it? How many likes or shares will that post get? Likely, the inside of a doughnut.

Regulatory caution

What about lead generation? AI companies boast about the ability of these tools to help mortgage originators find leads. Below is what ChatGPT says when prompted, “Write about using AI to bring in new mortgage leads and how to communicate with clients.”

The AI Wand: Turning Data into Leads. Imagine AI as the magician’s wand, waving over a sea of data, and voila — out pops a list of potential clients. AI has the incredible power to sift through massive amounts of information faster than a blink of an eye. It identifies prospects who are actively looking for mortgages, like a hawk spotting its prey from miles away.

The Rabbit Hole: Where AI Finds Your Leads. But where does AI find these leads, you ask? Well, it’s a bit like a scavenger hunt. AI scours social media platforms, real estate websites, and even good old Google to discover people who have shown interest in buying a home. It’s like finding Easter eggs — except instead of candy, you get valuable leads.

AI vs. Manual Search: The Tortoise and the Hare. Now, let’s talk speed. Imagine manually searching for leads as being the slow and steady tortoise, while AI is the speedy hare. The tortoise may eventually find a few leads, but AI has already raced ahead and gathered a bouquet of them. AI saves you time, and as we all know, time is money in the mortgage game.

That all sounds well and good. But if you use AI to bring in leads, are you sure that you aren’t taking an action that potentially discriminates against some clients based on their race, religion, sex or other characteristics?

Meta (formerly Facebook) already landed in trouble with the Federal Housing Administration over discrimination with its targeted advertising system that uses AI. And CFPB Director Rohit Chopra has warned that more regulation is called for with AI-based lending decisions.

●●●

Bottom line, artificial intelligence can be and will be a timesaver for originators and many other mortgage professionals. Originators can rely on AI to create content, but the person using the content is responsible for what’s published. Be brave, but be careful. ●

The post ‘Hey, Peeps’ Isn’t the Best Conversation Starter appeared first on Scotsman Guide.

It’s very likely that 2023 has been one of the toughest years to get organic leads into your sales funnel. That frigid feeling of calling strangers isn’t helping either.

Yes, there are companies that sell leads. The credit bureaus will even sell you trigger leads. You might have told yourself that your business isn’t set up that way. Maybe you don’t want to throw your hat in the ring for a lead that has already entered the sales funnel. Likely, and intuitively speaking, it’s because if the prospect or lead doesn’t know you, then almost certainly the only point of differentiation you have to negotiate against is price.

Consumers who don’t have a preference for a specific mortgage originator, bank or retail lender just do an internet search for “lenders near me” or “best rates on a 30-year loan.” How do you get these leads into your funnel before you have to compete and pay for them? The answer that you may already know is that you need more referral partners. And these primary referral partners are real estate agents.

Expanded network

Let’s understand more about the sales funnel inside the mortgage world. Do borrowers start daydreaming about a 30-year fixed mortgage, or do they start dreaming about seeing themselves inside of a beautiful home that they found online?

As much as mortgage professionals want to think borrowers are going to a lender first, they are unequivocally starting with home search websites, finding a property, then poking their real estate agent (or finding one, if they didn’t like their previous one or are first-time buyers). The first question the agent is asking them is, “Are you preapproved?”

Granted, it’s an older survey (from 2016), but Freddie Mac reported that 84% of real estate professionals have a select group of lenders to which they generally refer their clients. Of these, 73% have one to three lenders in their network, while 24% work with four to six lenders. More than three-quarters (76%) say their clients always or often use their recommended lender referral. This figure climbs to 87% among agents who sell more than 20 properties per year.

Wait, what? You thought your real estate agent was only loyal to you? Statistics don’t lie and you are likely only one of the choices on your real estate agent’s cell phone contact list.

To make it through the rest of this year, you need to put yourself on more agents’ contact lists. There are an infinite number of strategies out there to meet new agents. It can be through cold calling, LinkedIn messaging, email lists or professional referral groups. The list goes on and on.

The cold, hard truth to 2023 is that the real estate agent’s business is down too. It’s really tough to tell an agent with whom you have no prior relationship that you want to become their referral partner. This is simply because there isn’t any working history or trust between the two of you. So, what is a better lead-in?

Practical results

In many sales trainings, one of the first things you are taught is to answer this question in 20 seconds or less: Who are you and why should someone care about you? In other words, why should that real estate agent care more about you than the 20 other originators who have reached out this year and are trying to do the same thing? What is your valid business reason for contacting them out of blue?

The agent isn’t going to refer business to you because you offered to buy them a cup of coffee. Chances are, your first communication with them is likely to be a little clunky.

Once you get the agent’s attention, the way you pique their interest is by having a cure to a problem that ails them. Their biggest problem this year is they don’t have enough closings. So, do they have clients who have fallen out of their sales funnel that you might be able to entice? Do you have a unique lending program that others may not?

Equally as important, you should have case studies that explain how you or your team have solved a similar problem for someone else. A real estate agent doesn’t want to leave the conversation thinking they are your guinea pig. They won’t willingly hand over leads they hold near and dear to their heart.

From there, if you’ve shown your worth, you’ll get them to send you more clients. This can still be a good year. But you need to make the connections that will let you leave the cold calls in the freezer. ●

The post Put the Cold Calls on Ice appeared first on Scotsman Guide.

Well, summer is just about here — and it’s only a few weeks away from the end of the school year, which officially launches the start of the summer homebuying season. Are you hanging in there? Or are you hanging on by a thread?

Whether the forecast of better days comes to fruition is almost beside the point. If things get better, great. Then you likely won’t have to worry. But what if they don’t get better? What can you do to help yourself — especially if you are one of those whose thread count might be on the lower side?

It’s time to act. It’s time to move forward. Undoubtedly, loan volume is down and there are some originators who don’t have any loans in their pipeline. Freddie Mac warned in October 2022 that total mortgage origination volume for residential housing would drop by more than $650 billion, going from $2.6 trillion in 2022 to $1.9 trillion this year.

United Wholesale Mortgage (UWM) estimates that roughly 22% of the mortgages completed in the U.S. are done by mortgage brokers. If the Freddie Mac estimate holds true and mortgage brokers retain their market share, this means the broker share of the pie will decline by about $143 billion. If the average broker receives 1.5% in commissions, it means all of the brokers in the country will see a decline of $2.15 billion in their net income this year.

Breaking it down even further, you can see what this means for individuals. There are 25,510 mortgage brokers in the U.S., according to Zippia, an online recruitment company. If these brokers were to lose a collective $2.15 billion in commissions this year, that would equate to an average loss of $84,280 in commissions per broker. That’s a sizable hole in their pockets.

Seize momentum

“Hang in there” simply seems like bad advice. The term implies that simply by not taking action, you’ll get through this. That’s not a strategy on which to gamble your business.

In sales, there are order takers and order makers. There are farmers and there are hunters. There are reactive salespeople and proactive salespeople. Business was so good for so long that it was comfortable and easy to be a reactive salesperson.

“The client returned for another loan because you offered good service — but they entered your funnel because of a different reason. Your challenge is to figure out that reason.”

In today’s market, an environment with fewer commissions on the table, it’s the proactive salespeople who are getting their unfair share of business. If they are getting their unfair share, are they taking it from you?

For the sake of the rest of the year, aim for the Scout motto: Be prepared. Bring positivity, but don’t expect economic conditions to change and help you finish this year strong. What is your business plan in this environment? What are you going to do differently to get loans in the funnel?

Maybe the thought of cold calling real estate agents makes you anxious or the idea of buying leads makes the hair on your forearms stand up. This isn’t to suggest that you try either of these tactics. But you’ve got to do something, don’t you?

Create a plan

Maybe you don’t have a plan or, if you do, you aren’t using it. A plan is something that you look at once a week and ask, “Did I do it?” It is a yes or no answer. There are no, “Yeah, buts.” A plan is also different than a goal.

A goal is an outcome. For example, a goal for the month of May can be to have 10 active loans in the pipeline. The plan is how you get there. It’s the road map.

And your pipeline isn’t going to fill with 10 loans by “hanging in there.” They will get there because you put them there through working your activity plan. Your activity plan should consist of actions that put you in front of a qualified prospect who can say yes or no to the question, “Do you want to do business with me?”

There are mortgage brokers who do things like reaching out to a specific number of people on LinkedIn each week. It can be about identifying homes in their communities that were sold in November 2022 (when interest rates were at their highest), then reaching out to borrowers to let them know that a refinance might soon be in order — which they probably are already thinking — and that you have a solution. It’s also doing things such as sending out a newsletter to past clients to ask for a referral.

For example, if you wrote down you were going to send 100 LinkedIn invites, tape 10 letters to front doors of folks who bought in November 2022, and send your newsletter out that week, you can answer the question with a simple yes or no. Did you do it?

Then each week, you can be your own sales manager and start looking at things like, “How many LinkedIn connections does it take to get a conversation started?” “How many letters do you have to tape up on different doors to get a response?” Then you can do cool stuff, such as setting expectations for how many loans your pipeline will get based on your specific number of projected activities.

Plant your flag

A unique selling proposition (USP) is what separates you from other originators in the marketplace. There is a reason that Whole Foods, Costco and Kroger all have full parking lots at their grocery stores on the same weekend — even if they are all within a few miles of each other. They each have a unique selling proposition. Some of this is cost related while some is selection related.

Develop your USP in one sentence. The wise know that it shouldn’t have the word “service” in it. You’ll agree that no loan ever entered your funnel because the prospect was sold on the fact that you provided good service. The client returned for another loan because you offered good service — but they entered your funnel because of a different reason. Your challenge is to figure out that reason, then make it a headline on your LinkedIn profile.

As an example, a fantastic unique selling proposition can be heard from a lender in Orange County, California. He said, “I don’t want your regular loans. I want your hairy loans. Give me the ones that your go-to nonqualified mortgage lenders won’t touch.” He simply planted his flag. He knows the space in which he wants to operate. That lender does really well.

Lastly, it might help for you to have an accountability buddy. This is another mortgage broker or colleague, someone who is in your shoes who can ask you, “Did you do it?” This isn’t a mentor or someone with whom to commiserate. This is someone who will help you stay proactive, not someone who will tell you to “hang in there.” Now go grow your business. ●

The post The Cavalry Isn’t Coming appeared first on Scotsman Guide.

As a homebuyer, is it better to sit out 2023, or is it safe to enter the market and start looking? As a seller, is the more prudent decision to wait for price appreciation to return to positive territory?

Mortgage originators, along with the general public, have access to one of the deepest treasure troves of information to answer these questions. They can then start to formulate opinions to see whether any historical trends can be applied to this post-pandemic marketplace. The source? The Federal Reserve.

Historical perspective

When looking at the Federal Reserve’s historic timeline of census and federal housing data, there are a few charts that often are overlooked. Yes, one can see average home prices listed over time, but the data can be converted to see the year-over-year percentage change in housing prices. This view can provide a rich new perspective to the housing story.

 When analyzing the data through this lens, it can be seen that there have been only three extended time periods in the past 50 years where national home sales prices have declined in value. The first time was during a recession in the early 1990s.

The second time was in 2008-09 during the Great Recession. This was the result of the subprime mortgage crisis and subsequent bank bailout. This time period represented the most dramatic price drop for the U.S. housing market in the past half century, as sales prices dropped by 8.5% from mid-2008 to mid-2009. For mortgage originators who weren’t in the business back then, that was when (imaginary) one-armed accordion players were receiving adjustable-rate mortgages with only a credit score and no requirement to disclose income.

The last time national housing prices dropped was in 2018 and 2019. Wait, what? Did anyone even realize there was a nationwide price decline a few years ago? The significant boom-bust-boom cycle of the economy from late 2019 through 2020 must have erased all memories of that.

Resumed reduction

Before exploring this thought further, it’s worth looking at the year-over-year percentage change in mortgage rates over the past 50 years. This is different from looking at simple mortgage rates over time, as it focuses on how much mortgage rates changed compared to the prior year.

Freddie Mac data shows that just before a recession, interest rates initially rise. On the back end of the recession, however, they are lower than when the recession started. For instance, before the Great Recession, interest rates on a 30-year fixed mortgage rose from 5.53% on June 30, 2005, to 6.78% one year later on June 29, 2006. Then the crash came. Before the recession had officially ended, rates had dropped to 4.78% on April 2, 2009, lower than before the economic turmoil started.

 But this doesn’t answer the question about why national home prices declined in late 2018 and all of 2019. Deeper exploration shows that rates went higher in late 2017 and 2018. This was a reaction by the mortgage-backed securities market to the Federal Reserve cleaning out its balance sheet and putting the brakes on purchasing Freddie Mac, Fannie Mae and Federal Housing Administration loans.

As a result, 30-year fixed mortgage rates went from 3.78% on Sept. 14, 2017, to 4.94% on Nov. 15, 2018. The forward effect into 2019 was that the number of homes sold nationally dropped by nearly 12%. During this time, the Federal Reserve also was starting to pull money out of the economy. Starting in 2016 and running through July 2019, the federal funds rate rose significantly. This is starting to sound like the Fed’s actions of 2022, isn’t it?

Unprecedented increase

Rewind back to early 2020, as one can surmise, the COVID-19 pandemic forced the Fed to reverse its actions and save the economy from collapse. In 2020 and 2021, the Federal Reserve reopened its balance sheets and started to buy mortgage- backed securities (MBS) at levels never seen before — and pumped money into the economy at a pace not seen since World War II. This action, along with the federal funds rate returning to near zero, was arguably the reason why the MBS market reacted and produced the lowest fixed mortgage rates in the history of the U.S. in 2021.

Fast forward to 2023, and with the pandemic seemingly in the rearview mirror, the Fed is getting back to work in slowing economic expansion (i.e., the pandemic-fueled economic burst, which is arguably is what caused this historic period of inflation). In the opening months of 2023, is the economy back in the era of the subprime loan crisis and bank meltdown, or is it more in line with pre-pandemic policy?

At no time ever in the past 50 years have interest rates ever increased at such a fast pace (when looking at the year-over-year percentage change). At the start of 2023, rates were more than double what they were a year earlier, which has never happened before. That’s why there’s so much angst, so many questions and so few answers about today’s housing market.

Appreciated insight

It’s natural to wonder whether the country will adopt today’s rates as the new normal without an implosion of home prices. Will this year’s home price correction be on par with the 8.5% decline of the 2008-09 subprime crisis? Will it be closer to the pullback of 1.9% in 2019?

Take a breath and remember the discussion of the pre-pandemic economy. The Federal Reserve is seemingly trying to get the U.S. back in that lane. For mortgage originators, the bottom line is to be a resource to both new and old clients. Have an opinion and base it on historical data, then proactively communicate your opinion. In times of uncertainty, consumers are looking for guidance. Referral partners are looking for the same.

As more economic data becomes available, it’s OK to change the forecast. With all of the supercomputers the National Weather Service has to forecast the weather, they are only able to predict seven days out, and even that is not always correct.

The question remains, where will home prices drop to in 2023? Obviously, no one knows for certain. But you can generate an opinion using available data and offer these insights to your clients and referral partners. They’ll appreciate the perspective. ●

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