Yesterday we tweeted about the importance of experience when giving mortgage advice. The message was that brokers with less than 12-18 months of experience need mentors.
In response, we got this message from an anonymous reader:
“[Your] tweets regarding mortgage experience are disturbing –> No, you don’t need a 4 year apprenticeship to become a mortgage broker. The one book and a single multiple choice test is enough. Trying to limit people in the sector so you can fatten your wallets??”
It seems our attempts to shut out newcomers and corner the mortgage broker market have been discovered. Next time we’ll better cover our tracks.
And now for some facts…
According to Maritz Research, people use brokers for three primary functions:
To get the best rate and product
To become better informed
For a wider range of products
But the top drivers of mortgage satisfaction (as stated by actual customers) are different:
Ease of doing business with
Providing info to make informed decisions
Understanding my needs
How well do brokers do at this? Well, only 51% of broker customers indicated complete satisfaction with their mortgage rep, says Maritz. That’s better than the 43% of non-broker customers who said the same. But it still leaves roughly $35 billion a year worth of brokered mortgages where the client is at least partially unhappy.
In many of those cases, the broker dropped the ball on one of the satisfaction drivers above. And that brings us to new brokers.
As the reader noted, most brokers need to be licensed. To do that, they take a class, read a fat book and take a test. It’s not a cakewalk for newcomers to the business, but it’s not exactly a CFA exam either.
The book and test provide a basic mortgage foundation (e.g., what is a mortgage, basic mortgage math, mortgage regulations and so on.). But they provide limited information about how to:
Ask clients the right questions to determine suitability
Determine the optimal term length
Avoid lender compensation conflicts when recommending a mortgage
Comparing less-obvious mortgage features (penalty calculations, port rules, blend and increase, no-frills mortgages, conversion policies, etc.)
Understand the mortgage rate market
Recommend mortgage strategies for seniors
Determine the benefit of refinancing
Calculate debt ratios for self-employed borrowers or those with rental properties
Do advanced math for comparing open vs. closed terms, hybrid mortgages, weighted average interest costs, cash-back mortgages, etc.
Advise on the pros and cons of different down payment sources
Stress test clients
Spot signs of fraud
Understand the very basics of commercial and income property lending
Manage the discharge, appraisal and closing process to ensure deals close smoothly and on time
Structure applications to maximize chances of prompt approval
Build credit and get a non-prime borrower into an “A”-mortgage as soon as possible
So alas, you need more than a book. Organizations like CAAMP, Genworth, and others provide practical education, but it’s no substitute for experience and on the job training. As a new practicing broker you’re constantly learning every day. The problem is, when you first start you don’t have many clients to practice with, and you don’t want to make mistakes at their expense.
Back when my career began, I read every mortgage book, mortgage website and mortgage-related magazine I could get my paws on. I also began researching mortgages and writing about them for a living. Yet still, I made a fair share of mistakes. We all do.
I’ve written many times that I would not have wanted to get a mortgage from myself when I first started in this business. I simply didn’t know enough to properly select terms, products and rates, and help clients close without delays or hassles.
Fortunately, my wife was a great mentor (she started before me), and she had her own mentor in Rob Zanet, a tremendously knowledgeable and ethical broker from our old home town of Windsor, Ontario. That mentorship cut down the learning curve enormously, to months versus quarters.
New brokers need to work hand-in-hand with experienced brokers for at least 12-18 months (but not four years, as suggested above). In fact, some believe a short apprenticeship period should be baked into provincial licensing guidelines.
There are so many mistakes a broker or bank rep can make, and the cost of those mistakes (to the client) is sufficient enough to warrant structured mentorship and/or apprenticeship programs.
Tales of a client’s bad experiences can spread at light speed in our online age. That, and the potential cost to consumers, makes insufficiently-trained brokers one of our industry’s top threats.
Rob McLister, CMT
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