A Business Growth Strategy for Mortgage Brokers
How thinking small can give you a big advantage in a highly competitive market.
Let’s face it, the home mortgage industry is very competitive. Big banks with large mortgage operations, direct lenders, large correspondents, table funders, and online lenders all compete for the same borrowers. The home mortgage industry is big, but with so many competitors, your market share is limited. If you’re competing but not growing, it’s time to make a strategic shift. Only the nimble survive. Having a solid business growth strategy is essential for mortgage brokers to maintain their profitability and growth regardless of their company size.
Markets are Constantly Changing
With interest rates rising and falling, economic conditions shifting, housing inventory fluctuating and home ownership demographics evolving, today’s home mortgage marketplace is in a constant state of change. What worked in the past, may not apply to the future, or even the present. As a broker, you must expect and prepare for change, because change is constant. Failing to account for it will cost you.
A changing marketplace often requires a new perspective. You can’t grow by trailing your competition. Successful companies don’t follow. They lead by creating a value proposition that attracts new clients. They adapt by modifying their approach to business. The same truths hold true when developing a growth strategy for your brokerage business.
The Secret to Business Growth: Find New Markets to Serve
Competing in the business of consumer home loans can get bloody. When brokers compete for the same consumer home loans, their business becomes a commodity. There are only two ways to win: either lower your price or offer more services for the same price. This race to the bottom creates a downward spiral that limits your business’ growth potential. You can’t compete if rates drive your business and spending more time to close each loan costs you time, money or both.
In any business, the secret to growth comes from finding new markets to service, especially markets with less competition and huge potential for revenue growth. It’s a value-based business model centered around finding untapped demand in an underserved market with fewer competitors revealed by a ground-breaking business publication called Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.
Why Blue Oceans Are Important to Mortgage Brokers
Most businesses focus on putting their current customers first. That’s great if your customers generate regular repeat business. That isn’t the case for home mortgages, where the typical borrower signs only eight mortgages in a lifetime, including personal residences, rental properties and refinances. Yes, servicing your current clients is still important and will deliver referrals, but if you want to grow exponentially, you must find new customers.
For blue ocean businesses, the mantra is “non-customers first.” The objective is not to compete for existing customers in a commodity-based marketplace like consumer home loans. It’s about creating new demand and growing your brokerage by expanding your customer base, especially among prospects who offer repeat business potential. For mortgage brokers, that market is real estate investors who tend to seek more mortgages than the typical consumer home loan client.
Velocity’s Business Growth Strategy for Mortgage Brokers
Velocity offers a blue ocean strategy that allows brokers to service the unmet needs of an underserved market of independent real estate investors and small business owners. These borrowers typically don’t qualify for traditional bank loans because they often fall outside of rigid underwriting rules that miss the story behind the numbers.
Most often, residential investment and small commercial investors are forced to use hard money lenders, which typically require higher interest rates and shorter terms. These requirements reduce cash flow and increase the cost of acquiring properties, two of the most important considerations for real estate investors.
As an independent, direct portfolio lender that retains and manages its mortgage portfolio, Velocity is free to set its own underwriting rules. Our asset-based lending approach places more emphasis on the value of the property and its revenue-generating potential, allowing us to qualify more self-employed investors and small business owners. It also enables brokers to cross-sell investment and small commercial property loans to their current home loan customers.
Moreover, moving from consumer home loans to investment properties is simpler than most brokers think and doesn’t involve the complexities of larger commercial deals. The learning curve is short, but the rewards can be significant.
An $800 Billion Market Waiting to Be Serviced
Together, investment property mortgages, which includes residential 1-4 investment, multi-family, mixed-use, and small commercial properties, generate an estimated $2.5 trillion in mortgage loans each year. Roughly 35-percent of loans submitted do not qualify for traditional bank funding, creating an $800 billion market opportunity for brokers — with significantly fewer competitors.
Expand Your Existing Business
If you already offer investment and small commercial property loans, Velocity provides an alternative, non-bank contingency plan for borrowers who don’t qualify for traditional bank financing. Indeed, having a secondary source of funding in your arsenal for the estimated 35-percent of investment and commercial property loans that don’t qualify for traditional bank financing is a good business strategy for brokers, particularly if that lender can provide the flexibility to meet the unique needs of your clients. After all, brokers are responsible for finding the “right loan” for each borrower, even if the solution involves a non-bank lender. Doing so earns them the reputation as a trusted adviser who helps clients overcome their business challenges through the creative use of multiple real estate financing solutions.
Adopting a Blue Ocean Business Growth Strategy for Mortgage Brokers
If your brokerage is competing but not growing, or you simply want to increase your growth potential, it may be time to make a blue ocean shift. Untapped demand is out there, and Velocity’s residential investment and small commercial mortgage programs can help you find, service and profit from it.
If you’d like to talk to one of our investment and small commercial property specialists to learn more, click here and complete a contact request form.
In addition, the following articles provide more information about our mortgage programs.