It may seem like a flash of the blindingly obvious, but it's interesting and potentially useful information for loan originators who focus on building purchase business in their local markets: Inside Mortgage Finance recently commissioned a national survey of real estate agents, and found that Realtors express a clear preference for local lenders over call centers.

Why Do Realtors Prefer Local Lenders?

Delayed Closings. According to the survey, delayed closings are much more common when the buyer is not using a lender with a local office. You know from your own experience that Realtors get very nervous when it begins to look like the closing may be delayed because the lender has not obtained a final approval from underwriting. 

Lack of Accountability. A home sale with a $250,000 purchase price is worth $7500 commissions to each of the Realtors in the transaction. With that much money on the line, they don't like surprises, and they especially don't like having to deal with a contact person in a faraway city that doesn't rely on the Realtor for their business and is in no way beholden to the Realtor for the current transaction. It is almost impossible for a Realtor in this situation to get a straight answer from anyone in authority at the out-of-town mortgage center. And if there is a problem at the closing table after office hours, there is no one the Realtor can call to get the problem resolved.

Lack of Experience with Local Lending Laws. You know your state's laws as they apply to mortgage lending. According to the Realtors who were surveyed, Call Center companies that loan in all 50 states make more mistakes that can lead to delays or worse.

The Inside Mortgage Finance survey (conducted by Campbell Research) was apparently focused only on Call Center lenders, but many of the complaints voiced by Realtors about the call centers also apply to the nationwide megabanks. My coaching clients have frequently told me that Realtors are constantly complaining about the big banks, as well as the call centers, but they are often reluctant to say anything about it to their buyer clients. They don't want to appear to be trying to influence the client as to their choice of lender, and ultimately they're afraid of losing the client altogether. In many cases, the Buyer has already gotten "preapproved" online by the call center or the big bank before they even approach a Realtor. From the Realtor's point of view, it's hard to un-ring that bell.

Suggested Action Step: Every time a Realtor tells you about a negative experience with a Call Center or mega-bank, take down enough information from the Realtor so that you can construct a narrative of what happened. Collect as many of these as you can, and put them together into a report that you can circulate directly to your own clients and prospects. You can also make these reports available to your Realtor Partners for distribution to their clients and prospects. Remember: nothing beats evidence. (In assembling the stories for your report, be sure to quote the Realtor who is telling the story, and get permission to use their name. Avoid directly naming the call center lender or the mega-bank in question. Use as much detail as possible, including dates, numbers, specifics of the transaction – especially specifics on why the loan was held up or declined – but don't name the consumers involved unless they have given their permission.)

foreclose on the property – a process that both delays and raises the cost of obtaining a foreclosure). Because so much of this low-priced shadow inventory is now found in judicial states, fewer of these homes are coming to market.

Another constriction on inventory is being caused by what has been called the "interest rate lockout effect." Almost half of all homeowners with mortgages have loans with rates of 4.5% or lower. There is a well-founded and widespread belief that interest rates will be rising in the near future. As a result, these homeowners with low fixed rate mortgages have much less incentive to sell and buy another home if that would mean taking on a mortgage with a higher rate than the one they have now.

There is also a high percentage of mortgaged homes with an effective LTV of more than 80%. This doesn't prevent people from selling their home and buying another, but it would likely mean that they would be required to purchase mortgage insurance – thus making their payment higher and the mortgage more expensive.

These 3 factors have all contributed to the perceived lack of inventory.

There are also Constraints on the Demand Side
Historically, while first-time buyers represent a significant percentage of all buyers, the majority of homebuyers are also sellers of an existing home. But because of the supply-side constraints outlined above, we are not seeing as many "move-up buyers" in the mix. Many of the people who might otherwise be thinking of selling their home and buying another have decided to stay in their current homes and wait for conditions to get better. Until these people decide to sell, they won't be in the market to buy either, and that reduces demand.

Demand has also been reduced by the fact that institutional investors have lost much of their appetite for buying homes – largely because home prices have continued to rise (a 7.5% year over year increase in the Home Price Index just reported for June).

Furthermore, the significantly reduced number of loans being originated with credit scores below 640 today, compared to before the bubble burst, means that about 25% of the traditionally credit-eligible population is having a difficult time getting mortgage financing to purchase a home.

And finally, the decline in the national homeownership rate (currently at 64.8% -- its lowest point since 1995) shows a shift from owning to renting. This is particularly true of the Millennial generation. The home ownership rate for 25 to 34-year-old Baby Boomers was 51.6% in 1980. The homeownership rate for 25 to 34-year-old Millennials in 2012 was only 37.9%. (Millennials are also waiting longer to get married, which may be related, and many of them have much higher student loan debt than Baby Boomers did at the same age.)

How Loan Originators Can Proactively Respond to These Conditions 
On the supply (inventory) side of the equation, you can work with your Realtor partners to identify homeowners who might benefit from selling their current home.

Begin by identifying neighborhoods where prices are good (from a seller's perspective), and demand is good – as indicated by relatively short "days on market" before a sale, and by relatively high ratios (over 30%) of monthly sales numbers compared to the number of homes for sale.

We know that mortgage interest rates are still relatively low (about 4.25% as I write this for a 30 year fixed rate mortgage). If sellers can make a relatively quick sale of their current home, chances are good they will be able to purchase, and if necessary, finance their next home purchase fairly quickly, and before any significant increase in interest rates.

You also know that every situation is unique. The seller, for example, may have significant equity that can be applied toward the purchase of a next home. Even if the interest rate would be higher than their current rate, the larger down payment and the relatively small mortgage could make a higher interest rate a moot point for the client.

Your strategy would be to put together, with your Realtor Partner, a series of targeted, co-branded postcard mailings to the kinds of neighborhoods I have described. You and your Realtor Partner would be offering a free Market Analysis of the prospect's home (done by the Realtor), combined with a free Financial Analysis (conducted by you). The Realtor helps the potential Seller get a sense of what their house would sell for. Your job would be to interview the potential Sellers to understand what their goals would be, and what they would be looking to accomplish if they were to sell their home and buy another (or simply sell their home). With that information, you could put together a financial analysis that shows the prospective Sellers how likely it would be that they could accomplish their financial and personal objectives by putting your home on the market.

On the demand side, you would also want to work with your Realtor partners. They get leads every day from people who are basically dipping their toes in the water to see what's out there. These people are legitimate buyer prospects. They would not put themselves in the position of having to talk to a salesperson (the Realtor) unless they had a genuine desire to buy a home. But their skepticism and sales resistance is high – as evidenced by the typically very low rates of conversion that Realtors experience.

You (and not the Realtor) are in the best position to speak to these buyer prospects so that you can interview them and discover their reasons for wanting to buy a home – and just as importantly, their fears, obstacles, and concerns about whether this is the right time for them to do so. You can position yourself and act as a home buying coach. You place yourself on their side, and you help them understand and sort through all of the pros and cons of buying a home in today's market. Every situation is different. Whether you're talking to Baby Boomers, Generation Xers, or Millennials, you will find people who have been hesitant to move forward with the homebuying process because they have been misinformed or have been made fearful because of something they've heard from a friend or in the media that in their case, at least, does not apply.

In this way, you are able to help people who really would benefit from buying a home, and at the same time, you will be providing your Realtor partners with transactions they would never have gotten otherwise.

A New Seminar That Addresses This Solution
On Wednesday, August 13th, I will be presenting a new, free online seminar: The Home Buyer Strategy Session -- Your Key to More Originations. You may already be registered for this seminar. If you are, you received an e-mail yesterday with full instructions for joining the seminar. If you're not registered and would like to attend, go here.

You can also watch the latest seminar in the series, "How to Do an Effective Home Buyer Interview" by clicking here. You can access all of the previous seminars in this series by clicking here.

Almost any loan officer can get a Realtor to give them a buyer lead as a way of seeing what the LO can do with it, expanding the Realtor's financing options, or maybe because the Realtor's current lender just blew a deal.

Of course, it's not my approach to suggest you go around to Realtors asking for charity, or even "a chance" -- my approach is to come to Relators with a very solid value proposition that offers them significant benefits they're probably not getting from their current lenders.

In previous seminars, I showed you how to raise your visibility with the Realtors in your market through the use of content marketing that is both relevant and useful to agents. I showed you how, with patience, good content, and appropriate calls to action, you can get Realtors to reach out to you (rather than you being one of many loan officers chasing after them). I showed you how to do an interview in which Realtors come face to face with the statistical evidence in their business that shows them the true cost of the opportunities they are missing every day.

In September's seminar, I showed you how to follow that interview with a presentation that shows them exactly why they're experiencing the problems they are, and shows them how you can make an enormous difference for them by making a couple of simple changes in the way they handle the leads they are already generating.

When loan officers follow the process  I laid out in these 4 previous seminars, they are able to break through the barriers Realtors have erected (especially since refis went away and every Realtor is now getting bombarded by LOs who didn't pay much attention to the purchase market until there were no more refis to do). When you give the presentation I shared with you in the September seminar, you will make a very strong impression, and Realtors will be enthusiastic about working with you.

But how do you follow through, and how do you get the Realtor to follow through? Because Realtors will begin to forget how excited they were as soon as you leave. Unless you keep the momentum going, they will forget most of what you told them within a week.

In the most recent seminar (held on November 14th), I show you how to systematically build your Realtor relationships, and solidify your gains.

The video of that seminar is now posted on the site, and you can view it here.

As you probably know, I've been presenting a series of free monthly online seminars on how to develop your purchase market business.

The latest of these seminars, How to Give Effective Presentations to Realtors, presented on Sept. 19th, is now available for you to view on the website here. You can also access previous seminar videos here

I will be traveling some in October, so the next online seminar -- How to Develop Solid Realtor Partnerships -- will be on Thursday, November 14th at 11:00 Eastern Time (12 Noon Pacific). If you were registered for the last seminar, you're automatically enrolled in all future seminars in this series. But if you haven't registered yet, you can do that here.

For a preview of what will be covered in the new seminar, please go to the Seminars page

In the movie "Jerry Maguire", there's a famous scene at the end, where Jerry expresses his love in a long-winded speech to the Renée Zellweger character.

At some point, she interrupts him and says, "You had me at hello."
Unfortunately, when it comes to "courting" Realtors, you hardly ever have them at "hello". And if you don't establish enough productive, mutually beneficial relationships with Realtors in your market area, you're entering the purchase market race with one leg and both arms tied behind your back.

Loan officers tell me that one or more of the following things prevent them from getting enough purchase leads and referrals from Realtors:

• "I don't know enough Realtors."
• "I can't get Realtors to talk to me."
• "Realtors tell me they will send me business, but they don't follow through."
• "Most of the Realtors I know are too high-maintenance."

In addition to these obstacles, here are some of the things you have probably heard Realtors say -- mostly as a way of getting rid of you:

• "I already have a lender (I'm happy with)."
• "My office has an in-house lender that we have to use."
• "Most of my buyers already have a lender."
• "I'm a listing agent; I don't really work with buyers."
• "Sure, I'd be glad to talk with you, but I'm busy right now; can you call me sometime next week?"

If you've heard these kinds of responses from Realtors (and let's face it, you almost certainly have), you know how discouraging it can be.

So we need to figure out why you keep running into these obstacles when you try to get leads and referrals from real estate agents.

If you want better results with your Realtor outreach, there are a few things you will want to understand about them. Read the full article here.

Yesterday's jobs report, expected to show 150,000 new jobs created in August, came in at a disappointing 96,000 instead. The official unemployment rate actually dropped from 8.3% to 8.1% (because 119,000 people stopped looking for work in the same month) .

Fed Chairman Bernanke has already been hinting that the Federal Reserve is ready to begin a third round of Quantitative Easing, in an attempt to prevent the stagnant US economy from slipping into another recession. Quantitative Easing, in which the Fed buys US debt, is another way of saying that the Fed is planning to monetize the debt – which is a euphemism for printing a bunch of money and inflating our currency and making our money worth less.

There is some possibility that the Fed will wait to take action until after the election, in order to try to avoid making Fed policy a political issue during the campaign.

Chairman Bernanke's term ends in 2014, and Republican presidential candidate Mitt Romney has already indicated that he will not renominate Mr. Bernanke as chairman.

In the short term, a QE3 policy could temporarily help to keep interest rates low – a result which many in the mortgage and real estate industries would no doubt welcome.

At the same time, quantitative easing is, by definition, inflationary. QE2 seems to have had the effect of doubling the official inflation rate from 1.5% to 3%. Price inflation will affect virtually everything, including house prices. Again this is something that many people in our industry would welcome, but we should be careful what we wish for. When the cost of something goes up but its value does not, our money buys less of it.

What effect would a QE3 likely have on home sales? Average household income (in inflation-adjusted dollars) has fallen by $4000 in the last 4 years. An inflationary monetary policy would further exacerbate that problem. People are paying more, relative to their incomes, for basics like food and energy, reducing their ability to save to buy a home. Home price inflation would make it worse for buyers, and wouldn't even help sellers -- because the value of higher prices would be negated by inflation.

More importantly, the US debt now stands at $16 trillion – a number which exceeds the size of our entire economy – and it is growing every day. We are "fortunate" that, largely because of the problems of the European economy, U.S. Treasury debt is still considered a relatively safe haven, which means the Treasury Dept. is able to borrow at very low interest rates. Another round of quantitative easing may temporarily make us feel better (when the Fed buys Treasuries, the Treasury Department does not have to sell as much of its debt on the open market), but after the party ends, the inevitable hangover comes. A 10 year treasury currently pays 2.78%. But in 2000 -- just 12 years ago -- the rate was 6.03%. If the Treasury's cost of borrowing were to return to 2000 levels, it would raise our interest payments on the today's national debt by a breathtaking $520 billion annually.

As Friedrich Hayek (Nobel Prize winner in Economics and awarded the Presidential Medal of Freedom) warned, "I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments."

As I said, we in the mortgage industry should be careful what we wish for.

According to Inside Mortgage Finance, a Fed survey of senior loan officers revealed that  one-third of these loan officers indicated  that HARP applications accounted for 30% or more of their total applications over the last three months. FHFA reports a record high number of almost 126,008 HARP mortgages in June – about a third of Fannie and Freddie's total refi business for that month.

At the same time non-HARP business that Fannie and Freddie fell 25% between the first and second quarters (a period in which interest rates were declining). Inside Mortgage Finance's conclusion: "What that means is that even with a surge in HARP activity, overall mortgage refinancing activity is declining.

Margaret Thatcher famously said, "the problem with socialism is that, sooner or later, you run out of other people's money."

To that I would add that the problem with spending all of your time doing refinances, especially when rates are at record lows, is that sooner or later you run out of people you can refinance.

Meanwhile, LOs who were smart enough not to take their eye off the purchase market ball have gained ground on you.

Have you hugged your Realtors lately?

Bob