The Recovery Strategy: A Business Method for Mortgage Brokers

August 23, 2008

In November of 2007 new software – which costs nothing – was introduced to mortgage originators nationwide. I’m referring to the latest version of our Funding Suite credit management platform.
While I try to avoid mentioning our products specifically, I’m forced to in this case because without Funding Suite – and its advanced credit proofreading tools - The Recovery Strategy for mortgage originators would not even be possible.

In this post I’ll describe what the Recovery Strategy is, and why it can dramatically improve any mortgage originators’ business. In my next post, I’ll explain how you can easily implement a Recovery Strategy in your business.

Recovery is the concept of using software to “recover” initially declined applicants. Using a Recovery Strategy will qualify (recover) 15% - 20% of your initially declined applicants immediately – and the remaining applicants sometime within the next 12 months. Further, you will be able to do this without any additional cost or resources - and with very little extra work.

Phase One Recovery: Saving 15% - 20% of your initially declined applicants.
Upon the initial credit review, the loan is usually lost either because the applicant’s scores are simply too low. These low scores may disqualify the applicant altogether, or they may indicate a rate and/or terms unacceptable to the prospective borrower. Either way, you’re forced to disengage from the applicant.

An originator using the Recovery Strategy realizes that 15% to 20% of mortgage scores are actually calculated incorrectly due to credit data errors or credit usage errors. By using credit proofreading software, applicants in this category are instantly identified and then moved to a processor trained to resolve these issues immediately, which provides a new qualifying credit score within 24 to 72 hours.

It’s important to remember that these recovered applicants never left the qualifying pipeline – they were simply moved to Phase One Recovery. Through the process the applicants are positively impacted by a level of professionalism and qualifying expertise in the originator’s business that will generate additional word of mouth business. This is a very pleasant side effect of using a Recovery strategy.

Phase Two Recovery: Saving the remaining 80% of initially declined applicants.
After investing time and money to attract an applicant to your office the last thing you want to do is to disengage from any applicant – even those which can not be immediately recovered. Now you don’t have to. For the first time, software makes it possible to nurture these applicants to qualifying status over the next twelve moths without any effort on the part of the originator. Even better, this turn-key, software driven “mortgage qualifying” service can be sold to your applicants, generating a profit up front.

Instead of sending your declined applicants away, instead enroll them your own private, secured program that will educate them about mortgage qualifying and even give them a step by step plan toward better credit health. Without any effort by the originator, the client receives twelve months of ongoing education, coaching and guidance to help them achieve qualifying status. The moment they do, the system notifies the originator so that the loan process can begin.

How much additional income would you receive by qualifying an immediate 20% of your initially declined applicants? How pleased would your remaining declines be to discover you can offer them a personal credit health program to help them qualify within the next 12 months?

The Recovery Strategy is made possible only because new software has been invented to deliver it. Its free and available for originators right now. Its very easy to actually implement an effective Recovery Strategy in your mortgage business.

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Posted by Caped Crusader

Another Mortgage Broker Gets It

July 19, 2008

In occasional fits of literal despondency, I question whether the world really needs another blog – especially one as banal as this one.

Yet, in the course of a typical business day I’m reminded how little mortgage professionals truly understand about credit and credit scoring. And naturally, if those in the business lack understanding, how much more the typical mortgage loan applicant. So once again, I find myself behind the keyboard pounding out banality, hoping to educate the world one blog at a time.

This month my company signed a rather large mortgage origination shop. This company is doing well in a very difficult market, and as I’ve come to know some of the executives, I can understand why. Loan applicants are treated with respect, and the company pays for all prequalifying expenses. The company has solidly trained loan officers and even an executive solely responsible for corporate strategy. Its an honor to be supplying their credit management software.

Yet, in an operation this adept, this talented and this experienced, I must admit I was not overly surprised to discover how little they knew about credit proofreading – and the legitimate process of credit rescoring. It’s a fact that 15% of this company’s loan applicants that walked out the door without a mortgage each month  could have been approved. Why? The sad fact is that the loan officers had no idea that these applicants credit scores were calculated incorrectly due to errors in their credit files. Errors they could have resolved in less than three days – providing the applicant with an accurate, properly calculated credit score.

The very good news is that this mortgage origination shop now “gets it” – and they are rapidly embracing the credit proofreading concept. Top management is taking the time to learn how to use Funding Suite’s credit proofreading tools which instantly identify harmful credit errors. And they are creating business practices to teach their loan officers to properly communicate this new capacity to borrowers.

So it goes, that each month this firms loan applicants will be served by loan officers possessing state of the art credit proofreading tools. And each month, 15% more of them will qualify for a home mortgage.

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Posted by Caped Crusader

Credit Repair is Not A Good Solution

July 3, 2008

Credit Repair - Not a Good Fix

Over the past several months I’ve received many questions regarding credit repair firms – ranging from the actual service these firms provide to why I remain so dead set against them.

These questions reveal how little mortgage professionals understand about credit repair. How can an industry so vocal in their advertising (just try a Google search on “credit repair”), remain so mysterious about what they actually do?

I realized I needed to write an expose on the credit repair industry – and shed light on why these firms actually harm both consumers and mortgage lenders. This idea became an article which was recently published in Mortgage Banking magazine, and you can download the article here.
 
As mortgage lenders tighten their qualifying criteria, and credit score thresholds increase it may be tempting to refer your declined applicants to credit repair firms. This article explains why credit repair firms are not a good solution for you - or your applicant.
 
Note: If you just happen to be an individual referred to a credit repair firm – please take my advice: save yourself the money and avoid them. See a mortgage broker skilled in credit proofreading instead.

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Posted by Caped Crusader

Single Credit Data Error Affects a Million People

June 13, 2008

I’m a bit late sharing this story – but if you haven’t seen it yet its worth the read.

Here’s the article

It’s a good example of how credit data errors (though no fault of our own) can seriously damage our credit health. Unfortunately, the scale of this data error affected as many as one million people.

This one will be corrected, because its sheer size created its visibility. The danger with most credit data errors is that they go undetected – and thus unresolved. This is why the credit proofreading process is so important. Make sure you get your credit report proofread by a competent mortgage originator before you begin the mortgage qualifying process. Don’t pay more for your mortgage than necessary simply because undetected data errors harmed your credit score.

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Posted by Caped Crusader

Some of the Best Mortgage Originators

June 12, 2008

Our Funding Suite credit management software is used by tens of thousands of mortgage originators throughout the country. Consequently, I know many of these originators and some of them are extremely good. This morning I want to recognize a few top originators to highlight what too often goes unrecognized – an unwavering commitment to serve the applicant. 

Here they are, in no particular order.

Alan Vogan
First Lending Solutions
Riverside, California
(951) 317-3165
I’ve known Alan for years – and in the spirit of full disclosure, Alan personally handles all of my mortgage needs. When I need to better understand a new Fannie Mae underwriting issue, or the impact of new legislation on lending practices, I’ll call Alan. While its true that he understands the business of mortgage lending better than most, his true strength is an uncanny ability to see things from an applicant’s perspective. I recently referred a friend to Alan and his experience sums this up perfectly. While Alan was working on my friends loan he did the unthinkable and sent my friend to a competitor (Bank Of America) because he knew the bank had a very good loan program. Turns out that BofA didn’t offer the program as advertised, and Alan now counts my friend as a client.

Kevin Glackin
Village Capital
Mount Laurel, NJ
(856)-252-1517
Kevin has a very good understanding of mortgage credit – and is well versed in credit proofreading. Recently, credit proofreading discovered that the single derogatory item on an applicant’s credit report was involved a credit card the applicant used every day. However, though the card had the applicant’s name on it, he was actually an authorized user on the card. This means that the true card holder (his brother), had simply added a card to his account and then gave it to the applicant. The applicant’s brother was going through a difficult time and became late on the payments. Kevin’s credit proofreading tools revealed that since the applicant was only a user on the card, the late payments belonged to his brother, not the applicant. Kevin used his credit proofreading tools to permanently remove this derogatory account from the file in days. And, are you ready for this? The applicant’s credit score increased 240 points. Now that’s service.

Christian Lombardini
United Fidelity Mortgage
Nashville, Tennessee
(615) 383-5626
Christian is another one of my favorite loan officers because he consistently puts the client first. Sometimes this means working with a client for months (at his own expense) until the client is financially prepared to make a mortgage loan commitment. In one recent experience a client wanted a mortgage, but needed to increase his down payment amount. Christian consulted with the applicant and helped him devise a savings plan. Christian also used his credit proofreading skills to improve the applicant’s credit health at the same time. After following Christian’s advice, the client was able to buy his new home nine months ahead of schedule. The capper was that the applicant was referred by a real estate agent, and Christian went out of his way to make sure the agent received the all the credit. Nicely done.

Shane Jackson
ENG Lending
Little Rock, Arkansas
(501) 907-1126
Shane is another expert in credit proofreading, which means simply that he knows how to use software to detect and eliminate errors in credit files that damage credit health. When our company was interviewed by a leading mortgage publication about how credit proofreading helps borrowers, the magazine also interviewed Shane. Shane mentioned that more than 10% of declined applicants can be turned into approvals by simply proofreading their credit files, and removing errors. Imagine a couple declined for their first home simply because their credit score had been incorrectly evaluated due to errors within the credit file. Guys like Shane won’t let that happen.

If you are looking for a mortgage, I’d heartily recommend these folks. They’ll take care of you. If you are a real estate agent, and if you live near one of these mortgage professionals, do your client a favor and pass along one of these names. Tell them the Caped Crusader sent you.

 

 

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What I Learned from Fire Ants

May 13, 2008

I’m flying back to California from an extended weekend at my in-laws eighteen acre farm in Tennessee. It’s not a working farm, but one of those beautiful pieces of land perfectly accessorized with hundreds of yards of three board fence, ponds full of large-mouth bass, and lines of spectacular sixty foot tall oak trees. It’s the kind of place where you wake up to sounds even the Philadelphia Harmonic can’t duplicate. It’s a setting that, in the words of my brother in law, “will completely unwind a man”.

With the quickened pace of our California software company just hours away, and the quiet stillness of Tennessee only hours past, I’m stuck in a place that’s got me thinking just how important having a clear vision of who you are and what you want to be is to the success of your business.

You can learn a lot by watching chickens. Or fire ants. Or the way horses respond to a looming thunderstorm. Nature, for all practical purposes, is reactionary. The response may be simple, the way fire ants pour out of a hole made in their ant hill in such volumes it looks like blood streaming from some mortal wound. Or nature may respond complexly and more slowly, as in the way a tree will grow too tall for its own roots as it strains for light in a dense forest. Yet, no matter how beautiful, nature is a well orchestrated symphony of cause and effect.

Man, however is not a part of this symphony. We sit outside of nature’s rules in much the same way as the composer transcends the boundaries of the symphony being played. Man is gifted with the greatest of all gifts, an ability to envision, a capacity to create.

If you are a business owner, or an aspiring one, my weekend excursion into nature has compelled me to share one bit of advice: You will be successful if you continue to think and create. As you strive after your vision, you will grow. Become reactionary, (which this weekend has taught is the natural way of things) and you will stagnate. Keep creating. Keep growing.

My partner and I began Cogent Road with a simple vision – provide loan officers with innovative software that can help boost their business, and ultimately their incomes. This caused us to think about different ways in which our software could deliver this vision. Rather than trying to be a specific type of company, we focused solely on helping our clients. We began in 2001 with a credit platform we leased from a third party. As we thought about our vision, we created different ideas in which credit could be used to increase our client’s business. This led to ideas on how we could help our loan officer clients help their own client’s, the borrowers. It led to ideas in which credit could be used to increase our client’s word of mouth business from referring sources and previous borrowers. The led us to create Funding Suite, and in turn the concept of credit proofreading, which we believe to be the most powerful business building strategy a loan officer can use. And credit proofreading is leading us into new software offerings for loan officers that Cogent Road could never have anticipated just a few years ago.

Reflecting back on a weekend lived right out of the pages of Field and Stream, I realized how much we, as business people need vision. Perhaps for the first time I realized how contrary to nature a creative vision actually is. And likewise how difficult. Vision takes thought, and thinking may well be the hardest work a man can do. So it goes that I encourage you, wherever you find yourself right now, to begin creating. Begin the work of thinking about what you want to do and why you want to do it. Then by all means get to doing it. Break free of the reactionary nature of your industry, your competitors or even your own habitual way of looking at your business.

You possess what nature does not - the ability to create. Now get composing.

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Posted by Caped Crusader

Credit Use and Your Credit Score

May 5, 2008

The other morning I read a story in the Wall Street Journal that reveals just how unsure people are about the relationship between their credit use and their credit score. Since WSJ was kind enough to post it on their free site, here’s a link to the story.

The problem I have with the article is that the casual reader is left feeling helpless, almost at the mercy of a random credit score attached to hit or miss credit card use. The fact is, many mortgage brokers use advanced credit proofreading software that can identify exactly where you may be going sideways with your credit use.

Don’t feel bad if you don’t know how your use (or non use) of credit cards is helping (or hurting) your credit score. How could you know? And for that matter, those that say they know are only guessing. Credit use is always considered in context of ones complete credit profile. This means that opening up a brand new credit card may help your score - or hurt it. It all depends on how many cards you currently have, how often you use them and to what extent.

The bottom line is that the impact of your present credit use on your credit scoring is complicated. But it doesn’t need to be confusing. I’m suggesting that the best time to select and visit with a mortgage professional is before you are ready to buy or refinance your home. Pick up the phone and talk with a few of them – find out what they know about credit scoring – and ask them about their technical ability to scan your credit files for errors. Can they detect the issues in the way you use credit that are hurting your scores? Can they offer suggestions to improve your credit use in order to strengthen your scores? And can they scan your credit file for data errors that may be unknowingly harming your credit score?

These mortgage professionals exist. I know, because more than 20,000 of them use our software nationwide to perform these services every day. A one hour visit with anyone of them may result not only I a stronger credit profile, but also in the best credit education you’ve ever had.

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Posted by Caped Crusader

Credit Proofreading: Detecting Errors that Incorrectly Lower Credit Scores

April 23, 2008

Why is credit proofreading needed?
When borrowers apply for mortgage loans, their credit files contain three credit scores, calculated by the credit bureaus: Experian, TransUnion and Equifax. The data used to calculate these scores is collected, managed and reported independently by each of these bureaus. Over time, these files gather corrupt, erroneous, outdated and otherwise harmful data that lead to inaccurate – and often lower – credit scores.

What is credit proofreading?
Credit proofreading is the automated examination of credit file data, supplied by the three major credit bureaus, to detect whether or not a credit score has been incorrectly evaluated due to errors within the credit file.

What errors does credit proofreading detect?
Two types of errors are spotted: credit data errors and credit usage errors.

Error Type #1:  Credit Data Errors
Creditors report payment history to the credit bureaus using data such as credit limit, credit balance, payment amount, current status and payment history. Computers read this data to calculate a credit score. If anything is entered incorrectly due to human or computer error, inaccurate scores may result.

Error Type #2: Credit Usage Errors
Credit usage reflects the way borrowers use existing credit lines. Since credit use is a factor in calculating credit scores, improper spending habits can lower credit scores. Credit usage is misunderstood because many borrowers have little awareness of how their credit use affects their scores. Credit usage activities that get factored into credit scores include the number of available credit lines, the amount of debt incurred or the balance on each credit line and whether a credit card is used too much or too little.

How can credit proofreading help?
Credit proofreading evaluates the accuracy of credit reports, identifies errors, estimates how many points each error is costing the borrower and lists specific actions that can be taken to correct errors. Results can typically be returned immediately, and most errors can be resolved within 72 hours. For borrowers with credit usage errors, mortgage brokers and loan officers who conduct credit proofreading can offer suggestions on how to alter credit usage habits to legitimately increase the credit score.

How is credit proofreading different from credit repair?
Credit repair companies falsely claim to clean up credit reports, for a substantial fee, so borrowers can get approved for auto loans, mortgages or insurance. These schemes do nothing more than dispute information, which borrowers can do for themselves easily and at no cost. Credit proofreading, on the other hand, evaluates the accuracy of credit reports and assists borrowers in correcting errors or changing spending behavior – at no cost to the borrower. Further credit proofreading analyzes the actual data within the credit file, something a borrower can not do without the help of a mortgage professional.

Where can borrowers receive this service?
More than 4,000 mortgage professionals around the country have automated credit proofreading tools to identify and resolve data and usage errors within credit files.

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Posted by Caped Crusader

Paper Credit Reports Are Not Enough

March 27, 2008

I’ve got a headache. Literally.

In a mortgage market that is arguably one of the most difficult we’ve seen in decades, you’d think today’s mortgage originators would use every available resource to increase their applicant’s qualifying ability. Too often however, they do nothing but order a credit file, glance at the scores and decline the applicant.

[Head throbbing]

For the past six months I’ve been talking with broker after broker in webinars, on the phone and via magazine articles about the simple and very real fact that FICO is punishing applicant credit scores because of errors and issues in their credit files. I could say the same thing this way: “Don’t trust the credit scores on your applicant’s credit report, their probably lower than they should be”.  Yet in all this, it seems I’m the only one that’s learned anything and that being how true the saying, “old habits die hard”, which is to say they don’t really die at all.

Ok, so I’ve given my self a headache by beating my head against wall after wall – but I’m amped up on Advil, so here I go again. Mortgage qualifying depends (to a great extent) on the credit score. While the paper credit report reveals your applicant’s current credit scores, it doesn’t reveal the data used to calculate those scores. The credit report is a composite (merged data from three different sources) which makes it near impossible to understand how the account tradelines relate to the credit scores. But what we do know is that over 70 percent of the time credit scores are wrongfully lowered because of bad file data or the applicant’s improper use of available credit.

So what to do? Since the odds are that the scores you see on a printed credit report are lower than they rightfully should be, it would be helpful to know A) what the scores actually should be and B) what issues need be corrected. You can pour over the paper credit report for hours on end and never answer any of these questions. But, run the file through some good credit proofreading software and you’ll get your answers instantly. You see, you need software to sift through the data solely from TransUnion in order to understand where errors are pulling down its score. Ditto for Equifax and Experian. You can’t use the merged tradeline data in a printed report since it may be a mash-up of data from all three sources. When it comes to qualifying, paper credit reports aren’t enough.

The ironic thing about this… and perhaps the root cause of my headaches is that credit proofreading software doesn’t cost anything since these tools come free when you purchase a paper credit report. All it requires is a change of habit. Most mortgage originators connect to their credit agencies through loan management software like Calyx Point or Encompass, which only pass through a paper (PDF) credit file. Left behind are all the credit proofreading tools that can help them increase file accuracy and raise credit scores. This is the habit that needs breaking. Instead, order the credit file directly through the credit agency’s software so that you can see the true qualifying potential. Then retrieve the existing file into the loan management software (rather than ordering it). There is no extra cost to do this – and it doesn’t add much time to the process. It will however, help you qualify significantly more applicants.

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Posted by Caped Crusader