HOW DO YOU PRICE YOUR SERVICE?

 "Our goal is to never lose your business over price."

 by Mickey Carlton

We hear this comment on television commercials several times per week (per day, if you watch a lot of television). It comes from more than one local business.

 This statement always makes me wonder how much respect the advertiser has for his or her products or services.  If the promise to never lose business over price is true, it implies that the product or service is of so little value that pricing is not an issue.  If the statement to never lose your business over price is false, it implies that the business relationship begins with a lie.  Either way, such statements do not make me eager to do business with the claimant.

Have YOU ever made this claim with respect to your mortgage services?

Are you truly willing to sell your time and your technical knowledge for the lowest rate the client can find as a comparison?  Keep in mind that the public's perception of "today's rate" is the lowest rate he or she has ever seen in print or heard fall from a relative's lips.  For the most aggressive rate shoppers, there is no rate low enough to convince them that they got a fair price.

Some loan originators justify lowball rates by convincing themselves that their borrowers will be deliriously happy, resulting in many referrals "down the road". In fact, borrowers rarely refer because of price. Borrowers refer because they trust you as a professional.  They sing your praises to others because of the value they place in the overall relationship between themselves, you and your institution.

Before you make a concession to a comparative rate quote, consider that an ethical transaction is an equal trade of value between informed parties. We, as mortgage consultants, trade our knowledge and advise for the client's ongoing interest rate payments. We owe our clients the kind of care and attention that suggests they have some rare disease and we are the only specialists capable of healing them.  In return, we deserve equal value in the form of reasonable compensation.

If your attitude is to price to the competition, you will always work for minimal compensation. If, on the other hand, you truly value and respect the service you provide, you will always be compensated in a fair and equitable manner.

Provide great knowledge and service. Recognize the value you provide.  Price accordingly.

Back to the Future or Back to the Past:

Is it time to return to the "Four C's"?

By Derrick B. Gruner, Esq., The Pinkert Law Firm

Amidst the receding tsunami of near global financial collapse, it seems like everyone has an opinion in one hand and a remedy in another. In the nearly 20 years I have participated in the industry first as a banker now as an attorney, I have seen many dynamic, exciting, and occasionally frightening changes in the way we do things. Many wonder, as I do, if the days of the "new economy" and going back to the future have really and necessarily brought us back to the past.

Consider that the basic premise of lending is to identify those persons or entities that have a need to borrow and then lend prudently and profitably. This process often begins with an evaluation of the borrower's credit or character, capacity to repay, capital (down payment), and the collateral against which the credit extended is to be securitized. While there are several variations on this theme, those of us who have been in the industry long enough were probably first taught to refer to these criteria as "the Four C's" Long before the advent of credit scoring and automated desktop underwriting, loan officers, account executives, processors, and underwriters had to make lending decisions based on the Four C's.

Then came credit scoring. While it is true that credit scoring is a wonderful predictive tool to enhance underwriting, it is also true that the use of credit scores was often abused as a substitute for underwriting, or worse, ignored entirely. Predictably, files that were actually underwritten by a trained credit analyst outperformed those applications that were merely scrutinized by means of a credit score, desk top underwriting, and basic verifications, if any. These loans were then bundled and sold to investors that all too often had even less understanding of the likelihood of performance (or, for that matter, default), than those responsible for extending credit in the first place. Against this backdrop, one must reasonably posit the following: is it time to return to human underwriting and the Four C's?

Recognizing of course that hindsight is always 20/20, perhaps credit scoring and desktop underwriting or the abuse thereof get a bad wrap. On the other hand, even in the "new economy", or what is left of it anyway, there is simply no substitute for sound underwriting and prudent lending. As my grandfather always used to say, there are no shortcuts. Perhaps it is time to return to the Four C's.

 Derrick B. Gruner (dgruner@pinkertlaw.com) is the senior managing associate of the Banking and Lending Group of the Pinkert Law Firm, a South Florida-based firm specializing in banking and lending litigation, bankruptcy and professional licensing representation.