14 April 2014

The Lighter Side of Lending - #3

There is a wonderful and humorous side to our work that can help us all enjoy this business a little more; lending is about people and it is a very human business. We'd like to share with you some examples that prove we are a very human and healthy lot - and we know how to laugh at ourselves.

Our daily interactions with each other and our retail customers is now so full of acronyms, slogans, catch phrases and various brand names (for lending) that even the most hardened and experienced IT industry professional would be confused; start smiling . . . you know it's true.

Did you hear the one about the customer who goes into a Home Loan Shop and asks for finance? The Lending Officer says, "Well we have . . . Low Doc, No Doc, Full Doc, Alt Doc, Honeymoon, Long Term, Short Term, Fixed, Variable, Interest Only, Reverse, Balloons, Buydowns, Cashouts, P&I, Professionals, Islamic, Private, Non-Residents, Low Start, 1st's, 2nd's, Secured, Caveats, Unsecured, Bridging, Mezzanine, . . ." The customer interrupts and says, "Err not sure, I just want a normal home loan." The lending officer continues, "Oh you need our fully optioned discount ezy loan - it's called the "Tidal Wave Loan". "Why?" asked the customer. "Because it wipes you out in the first month."

Mortgage Conventions

There are two types of mortgage conventions, (1) Let's Celebrate and Overdo Everything, and (2) Let's Figure Out Why We Failed and Whose Fault it Was. Breakout sessions in type one have speakers that promise things like "How To Close $10 Million in Loans Using WD-40", and small discussion groups gather to discuss improving customer origination service, which I suggest should begin with having a real person answer the phone. This may come as a surprise to some of you, but to others who have dealt with some bank loan servicing departments it will explain why the term "loan servicing" has become an oxymoron. It turns out that the best way to reduce the cost is to pretend you aren't there.

The second type of convention generally has their keynote speaker addressing a vexing problem such as "Managing Foreclosed Property". They invariably suggest a new technique called "The Flaming Arrow Solution", or "Self Defence using your crow bar", followed by several small arms workshops for those in the Collection Department and a new machine that opens mail one day late being unveiled for the first time. But wait, there's more. The breakout session is entitled "The people in this department have actually read all of the small print in your loan contract - and they know how to use it."

Industry Literacy

Collections staff have a good slogan too, "If You Think Nobody Cares About You - Try Missing a Mortgage Payment". But it's the after-hours talk that is most revealing about this side of our business. One competitor told me years ago that he insisted that his collectors compose all their own correspondence - no form letter. The first collection letter went to an English teacher. It said, "It appears your account is in arrears 60 days." She answered, "Write to me again when you are absolutely certain." Another collector wrote to a delinquent borrower, "I'm surprised we haven't heard from you." He wrote back, "Don't be, I didn't send you anything." A commercial lender dictated to his secretary, "Based on gross receipts of your business . . ." and got back, "Based on grocery seats of your business." All proof we live in an imperfect world.

Mail Bag - Borrowers are funny too

Some customers, God bless them, can see humor even in dire circumstances. One applicant letter stated, "Seller to have termites inspected prior to settlement." A satisfied customer once wrote, "You have helped put a roof over our head, a shed over our tools, a garage for our car, and a doghouse for Fred, my husband." One woman who was behind three payments wrote, "All our money goes for food. The kids just won't eat anything else." And there was the positive-thinking couple who wrote "Please send our prepaid interest back to us. We need a new vacuum cleaner and carpet."

Late payments may be a big problem but also throw in some accounting technicalities and then the headaches begin. Here's one classic we saw from a peer:

"Let me begin by saying I teach arithmetic. One twelfth of anything means you divide the sum into twelve equal parts, which you are apparently incapable of doing. To be certain you understand, please check the bottom of this letter and return it to me. I will send lesson number two". Ouch!!!

You Can Call Up My Loan - But It Won't Come

Variable rate loans with indexes and margins cause their share of problems too, but years ago we made a loan with a balloon provision (interest paid at end). We contacted the borrower and told him we were "calling" his loan. He responded, "You can call up my loan, but it won't come." Similar to the lady who, after receiving her change of repayment notice on an increase to her adjustable rate loan, told us, "I've decided not to do that. I'll just keep making my regular payment. Goodbye."

Computerisation has affected everything. One borrower who wouldn't pay the late fee told us, "I pay everything automatically and my computer was down." And the customer who wrote, "Please get a program called Quicken so I can make my payments through my computer. I'll hold the money in my account until I hear from you." Sure.

But wait - the one letter I remember most. It was from a lady who wrote to us, "I hope you will all live as long as it seems this loan is taking me to repay."

Client From Hell

Finally a broker recently wrote to us describing his own "Client From Hell" profile, you know the one - here is his brief snapshot.

  • Single male aged in late 40s who lives alone, or with his parents;
  • Initial interview - five hours then a two hour session the next day;
  • Phone Calls - multiple conversations of at least 30 minutes each, over the next few days;
  • Time Invested - both face to face and on the phone prior to unconditional approval - approx 12 hours; and
  • The loan submission - four loans to 2 different lenders with a combination of split loans, fixed rates and a line of credit.

The story goes on and on but the point the broker recalls was a call from the client after settlement. "You lied to me - you said that there are no fees and charges if I made extra payments or redraw!" "That's right," we said. The 'client from Hell' went on to say, "Not true. Telstra is charging me 25 cents for a phone call - are you going to reimburse me 25 cents every time I make extra payments or redraw."

... That's Lending

Best regards,
Paul Wells, Chief Investment Officer
La Trobe Financial Asset Management Limited

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

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