Dealing with the Post Mortgage Boom Squeeze
By Charlie Elliott, Jr., MAI, SRA

Not only lemons and oranges get squeezed in this ever-so-competitive world of ours, sometimes lenders, appraisers and other closing service providers get the same treatment. That is one of the beauties or scourges of our capitalistic system, depending upon where we are at the time. And, yes, timing is everything.

At the very least, we as professionals get a chance to live another day after we get squeezed – that is if we have enough foresight to put on the brakes before we smash head first into the economic train wreck which so many fall prey to. While not all lenders and service providers will feel the squeeze as much as others, tough markets will affect us all. If it has not yet affected you, stay tuned. The Mortgage Bankers Association projects that the mortgage market will continue to decline through 2005 and 2006, only to hit bottom in the early part of 2007. For those who have been feeding exclusively at the trough of refinancing, there is a more immediate concern in that the trough is already running low. They must get their house in order soon.

It does not seem so long ago that most of us were so covered up with business that we scarcely had time to respond to a call to nature. Today many of us find a different force of nature affecting our business. It’s called “survival of the fittest.” This force of nature developed from its origin of physical fitness and has evolved to that of business savvy. Said another way, the fitness issue has gone from that of a physical one to that of an intellectual one, that of demonstrating superior managerial skills.

One need not look further back than the last refi boom to see that these things are short lived, maybe a year, perhaps a little longer, and that’s it. This doesn’t happen just some of the time; it happens each and every time we have a mortgage boom. It is the responsibility of each of us with a little gray on the temple even if our business has not become soft yet, to pass the word to those less experienced that the pie gets bigger and the pie shrinks. Nothing is better than a pie getting bigger; we love this environment. However, if it seems to be too good to be true, it probably is.

How do we cope with this shrinking pie? We have two options. When I was in college I learned that we deal with such circumstances by either diminishing our consumption or augmenting our means. In this case we would interpret this theory to mean that we cut back on our overhead or increase our ability to capture business. While some of both will be required, capturing more business or getting a bigger piece of the pie sounds like more fun to me. In order to do that, we must be better at what we do. We can bet that customers will choose slow times to demand better service and lower prices.

This is a food-chain issue, which is not isolated to just one industry or service group. Everyone up and down the economic ladder becomes affected by the forces that cause change. An example would be that the borrower is at the top of the food chain, next is the lender, then comes the closing services providers followed by the suppliers of these venders, such as software providers and computer companies.

For those of us in this chain, we find ourselves getting squeezed from the top and in turn squeezing those below us. An example would begin with a borrower, who, for whatever the reason, seeks to cut his cost and searches for the cheapest loan that he can find. This forces the lender to reduce fees while seeking ways to cut costs and the appraiser to go back to the old fee he charged before he raised it during the boom while fine-tuning his expense budget. Then the computer software maker must think twice before charging the appraiser high software prices.

For some of us, tough times may just be a test to determine whether we stay in business. If we are individual practitioners, it may mean longer hours or leaner personal budgets. For businesses employing a staff of people, it could mean a cutback in employees and other overhead, or it may mean an aggressive initiative toward becoming more service oriented in an attempt to earn a larger share of the shrinking pie.

The bottom line is that all of us have to be more efficient, work harder and longer for our fees and to be more concerned about our customer’s wants and needs during the post mortgage-boom. It would be nice to be able to get through a lending recession without cutting back on staff or being stingy with our resources, however, such moves are usually necessary.

Tough times represent a completely different kind of challenge for many of us. It is a time to demonstrate what we are made of and to get our house in order for the better times to come. If we get squeezed, we have the satisfaction of knowing that our competitors are in the same boat. In a strange sort of way, tough times serve as a proving ground that can become a springboard for opportunities. It is, furthermore, a time to keep a lean budget and fight for a bigger piece of the pie by giving better service than we ever thought we could, while broadening our client base and our product line.

We must not do all of this just to survive. We must do it to learn, to develop and to demonstrate techniques of efficiency, which will serve us well when opportunities are more bountiful. The old adage, “the trend is your friend,” may just be more appropriate here than many of us would have believed at first blush.