Strategies for a rising rate market: sales automation solutions for brokers are a key element in a successful wholesale lending strategy, especially in a hostile rate environment. Here's what some savvy wholesalers are already doing.

THE PREVAILING WISDOM IS THAT POST-ELECTION rates will trend higher. Mortgage bankers are looking at the impact this will have on their margins and market share. Executing proactive strategies that mitigate against major declines in margin or share will make or break many mortgage banking careers.

As rates rise, origination volume falls. Few will debate that well-known outcome.

Since there is less business to go around, some mortgage banking competitors cut rates and fees to the bone--thus creating a margin squeeze. In addition, the loan mix flips from predominantly refi to predominantly purchase. In fact, the Refinance Index has fallen more than 86 percent since last year's record, according to the Mortgage Bankers Association's (MBA's) weekly applications survey.

This forces mortgage bankers and brokers who were cashing in on the refi boom to scramble--resetting and retooling their sales strategies, tactics and infrastructure to catch up to wily competitors who remained focused on purchase business throughout the boom. For those trying to catch up, margins are squeezed not only to "buy" the business but also to sell the business (increasing expense to fund the sales retooling effort).

Guillermo Kopp, director of the Financial Services Strategies and IT (information technology) Investments practice at TowerGroup, Needham, Massachusetts, agrees. "Financial service institutions--particularly lending institutions--need to rethink the way they do business, prioritizing ROI- [return on investment-] boosting activities that will ultimately enhance market share, customer retention and cross-selling opportunities," Kopp says. "On top of that, there is a need for lenders to prepare for the inevitable changing climate in the mortgage industry, and it's becoming clear that sales automation solutions offer the best way to seamlessly integrate and automate business processes."

In light of this, I interviewed four leading mortgage banking institutions to find out what they are doing about sales automation strategies to help their sales teams win the hand-to-hand combat brought on by rising rates.

First Franklin Financial Corporation

First Franklin Financial Corporation (FFFC), San Jose, California, is a mortgage banking firm with an enviable track record in nonprime lending, experiencing record second-quarter 2004 growth with $8 billion in loans, according to Origination News--the vast majority of which are purchase-centric, subprime transactions.

According to Steve Skolnik, First Franklin's executive vice president of production, "FFFC's strategy for dealing with rising-rate market conditions focused most on the drivers for our business. And the driver on the top of our list was how to help our seasoned sales team increase sales in the face of fierce competition. A key component in our strategy to grow our revenues was deploying a wholesale mortgage Broker Relationship System[TM] [BRS] from GuideMark, Nashua, New Hampshire."

This system helped First Franklin teams more fully penetrate their accounts and close more loans per customer, increasing the units per account executive (AE), pull-through and active account ratios. As a result, the corporation continues to grow not only its revenues but also its sales force in 2004.

The solution has dramatically streamlined the process of obtaining loan information. "GuideMark's BRS takes information right from our LOS [loan origination system], enabling our AEs to get the results of a loan decision quickly and on the fly," says Skolnik. He adds, "In the past when a broker wanted to know the status of their business with us, our account executives would have to collect information from multiple systems to create a composite view for their broker, which was time-consuming. Now, as our sales team is out in the field, our GuideMark BRS gives them immediate access to the broker's information as a composite view right on their laptop."

The system enables First Franklin to analyze the broker's business effectiveness over a period of time and review broker successes and areas for improvement by broad categories like product. It also allows them to review at a detailed level a specific loan.

"Beyond the ability to access and analyze loan information, the system is also helping us to trans-form the AE's relationship with our brokers by giving them the ability to cross-reference demographic data with our customers," says Skolnik.

"We use this demographic business intelligence to tailor e-mails and marketing campaigns to provide brokers with targeted, innovative products that will help them grow their business. This mind-set is delivering bottom-line benefits to our brokers, our enterprise and our AEs. Let's face it, in tough market conditions mortgage bankers are under increasing pressure to be aware of, and react to, changing business conditions by examining all sources of information that can help improve bottom-line performance. At First Franklin, we leave no stone unturned."

Flagstar Bank

Flagstar Bank, Troy, Michigan, one of the nation's leading mortgage bankers with 2003 broker wholesale volume of $32 billion, according to Origination News, realized early on the importance of supporting its account executives and brokers. About five years ago, Flagstar chose to develop an in-house, front-end system called Mortrac, which enabled its 2,500 approved brokers to easily register and lock a loan. Today, this online conduit channel allows loan data to flow bi-directionally to and from its sales team and customers.

"We look at Mortrac 2.0 system as the sales automation tool that propagates best-practice processes, because we custom-tailored it to fit our specific needs--[it] had to be easy to use, save time, provide valuable information and improve both overall productivity and cost efficiency on an ongoing basis," says Jodi Paull, assistant vice president of Flagstar National Sales.

The Mortrac system works by assigning the broker a loan number and registering all the data and correspondence associated with the customer inquiry. Flagstar's 143 account executives use Mortrac 2.0 as a sales automation tool to communicate with brokers; view customer correspondence, loan information, expiring locks and reports easily and effectively; and use it as a window into the sales pipeline.

Additionally, Mortrac 2.0 integrates with other in-house-developed modules such as Loantrac, which allows brokers to quickly and easily get a loan into the system via the wholesale Web site, order flood and submit to Fannie Mae's Desktop Underwriter[R] (DU). Another module, MGIC's eMagic[R], assists brokers in attaining initial findings and in conducting Fannie Mae's Desktop Originator[R] (DO) sweeps. Flagstar also developed its own desktop streaming software module and help-desk support tools to allow a Flagstar technology team member to look at the user's complete desktop and applications on his or her own PC, in order to support and train quicker and more efficiently.

"We understood early on that our AEs need to access important data in order to identify who their best customers are, track critical sales ratios and communicate quickly responses to critical customer inquiries in a cost-effective manner," says Paull. "Our Mortrac 2.0 provides the right mix of knowledge and analytics to our sales force, and subsequently to their brokers, as to what their business is providing in terms of what their closing ratios are and in understanding the value of the products they are offering."

InterFirst Wholesale Mortgage Lending

InterFirst Wholesale Mortgage Lending, Ann Arbor, Michigan, a division of ABN AMRO Mortgage Group Inc. (AAMG), the fifth-largest loan originator and seventh-largest loan servicer in the United States, according to the company, uses a consumer-centric sales strategy that has a number of components. These begin with SatisfactionFirst, a customer-based research initiative conducted by CFI Group Inc., Ann Arbor, Michigan, which was launched to determine mortgage broker satisfaction with InterFirst's products, pricing and business practices. SatisfactionFirst gathered feedback on the specific needs of the broker community, enabling InterFirst to create a response to those needs.

"InterFirst has always challenged itself to be the leader in wholesale mortgage lending; the industry's technology, innovation and sales leader," says William A. Newman, chief administrative officer of ABN AMRO Mortgage Group Inc. and president of InterFirst Wholesale Mortgage Lending, Ann Arbor, Michigan. Newman adds, "SatisfactionFirst represents InterFirst's leadership in action and its commitment to the success of its mortgage broker partners."

As a result of SatisfactionFirst research, InterFirst deployed two major tools to help its sales team improve revenues.

"One tool that is utilized by InterFirst's AEs is Best Software Inc.'s ACT![R] for contact management and account maintenance," says Shane Desimone, InterFirst account executive.

Account executives use the ACT! AutoScheduler to schedule multiple events such as calls, meetings and to-do lists, and allow the AEs to create, apply and reuse all their action plans or campaigns. Those events can be any combination of calls, meetings and to-do items. AEs also benefit from the ACT1 Letter Manager, so they can schedule letter events inside the campaigns as well as use the financial calculator to calculate mortgage payments, loan balances, present-value calculations, net present value (NPV) and internal rate of return (IRR), plus amortization tables in a snap.

In addition, MOAI[R] (Mortgages Online at InterFirst), an InterFirst-developed Web service, is another component in its sales automation strategy. MOAI is used by InterFirst's brokers to obtain instant rate locks, up-to-the-minute loan data, online funding and closing. InterFirst's MOAI allows customers to lock rates, submit loan documents, order closing documents and request funds in real time over the Web.

MOAI is used by thousands of mortgage brokers throughout the United States, and InterFirst is particularly happy with how the system has handled exponential growth in transaction volume. MOAI has provided InterFirst with significant returns on investment, such as handling increased volume per full-time equivalent (FTE) with proportionally lower operations, customer service and closing personnel; and eliminating faxing for adding a loan to the processing system and ordering funds.

National City Home Equity

National City Home Equity (NCHE), a division of National City Bank, Cleveland, generated more than $9 billion in prime home-equity originations revenue in 2003. The strategy for increasing revenue is built around accessibility to the account executives. With approximately 4,500 broker relationships, the company needs to ensure it is managing each one individually and understanding the dynamics. NCHE selected the GuideMark BRS platform because it provided a customizable view for its account executives.

In the first phase of deployment, NCHE assembled a GuideMark BRS launch group. As Ken Carter, executive vice president of NCHE, explains, "We started receiving positive feedback from the launch group during the very first day of training. After one of our executives received a call from a broker during the training session, she was able to extract a wealth of data from the new system and transmit it directly to the broker. As a result, we were on the path to generating a return on our investment from the very first day of the rollout."

GuideMark BRS gave NCHE's account executives more opportunities to get in front of their brokers with business information and analytics that brokers view as valuable, specifically showing them how they are making money and how to differentiate their service from that of their competitors. In addition, they have dramatically accelerated the rate at which they close loans, according to NCHE.

"In a highly competitive market, consumers equate time savings with excellent customer service. With a shorter process, borrowers have less time to worry about the most stressful thing they'll ever do--which is taking out a mortgage. By delivering immediate information access, GuideMark BRS has provided account executives with a powerful incentive to improve their wallet share with brokers. The minute you give AEs the tools they need to close more business, they will find ways to make that happen," says Joe Cartellone, NCHE's national sales manager. "GuideMark BRS has helped boost closing productivity per AE."

Process-driven planning and rapid execution

Competing mortgage banking executives who want to execute a sales automation strategy now that can be implemented relatively quickly might take a page out of any of these lenders' books.

The purchase of a commercially available system and then customizing it makes a lot of sense to Ken Richards, the customer relationship management (CRM) research director of International Data Corporation, Framingham, Massachusetts. He says, "Folks that think that software companies can make an institution customer-centric" simply by giving them out-of-the-box software "are trying to find an easy way out. Software cannot solve this problem. It can only back up a process."

We know that the mortgage industry is changing--the real questions are how much and how fast? If there is any lesson learned from previous cyclical corrections in the mortgage business, it is that those who begin the process of change early are more likely to be winners.

Cutbacks and declining refinance volume have led many firms to neglect coordinated strategies for broker relationship development. The greatest beneficiaries in a rising-rate market are the mortgage bankers who leverage this increasingly competitive landscape and execute sales strategies that face down the historic downsides of rising interest rates.

Eric Marks is a consultant based in Newburyport, Massachusetts. He is co-author of Executive's Guide to Web Services ([c] 2003), and author of Business Darwinism--Evolve or Dissolve: Adaptive Strategies for the Information Age ([c] 2002) and Manufacturing Leadership Throughout the Extended Enterprise ([c] 2000). He can be reached at [e-mail].