How To Sell A Subprime Mortgage Part Two: Finding the Customers

Ding Dong, Free Money Calling

Ding Dong, Free Money Calling

There I was, a brand new loan origination officer without the first idea of how to originate a loan. It took me a few weeks to figure out that Aames Home Loan hired me because I had years of phone experience and absolutely no mortgage experience. This was not the difficult situation you might think. At the time I had been a telesales professional for nearly fifteen years. I had sold everything over the phone from newspapers to time shares. It was a matter of using established skills and fudging while filling the gaps in my education.

By now many of you are wondering what the real estate board was doing while a total ignoramus like me was busily trying to originate loans. Unfortunately the real estate board had no control over Aames, because Aames Home Loan was registered and regulated through the Bureau of Corporations. Real estate loans were being sold independently of real estate law. Licensed real estate brokers expected their loan originators to have real estate licenses and to conduct business under the real estate board’s code of professional ethics. The Bureau of Corporations didn’t have a code of ethics to enforce. Of course the fraud laws were enforced, but unless a customer made a complaint, who cared? As far as my bosses were concerned, the only thing that mattered was originating a loan. This was my first exposure to Wall St.’s one and only commandment: Thou Shalt Not Get Caught.

Finding Customers

An important part of my duties as loan origination officer was to find customers to originate loans with. That was also not a very difficult task. I joined Aames during the last year of the Clinton Administration and the tech bubble had not yet burst. Many people felt prosperous but carried tremendous credit card debt. Most dotcom CEOs didn’t have any cash assets and bought everything on credit. They assumed that their stocks would keep up with their debts.

Other people were caught in the Clinton recession. Outsourcing and high interest rates kept their wages down while inflation ate up the value of the dollar. Credit cards were the difference between eating at the end of the pay period or visiting the food bank. Many of those customers saw a subprime loan as the logical strategy to save their failing credit scores. They could get a subprime loan to pay off their credit cards. When their scores improved, they could refinance again for a lower interest rate. Rapidly increasing property values guaranteed there would be enough equity for another refinance in a couple of years. At least that’s what they thought.

During the first few months of my subprime career, I had enough call-ins to assure that I made my weekly quota. However answering the phone was not my prime duty. I was supposed to get on the phone and telemarket for customers who were not calling in. There were two reasons for this. First, very few subprime loans got through the underwriters. By the middle of the month I would have over twenty loans in my pipeline. By the end of the month only one or two of that twenty funded. Second, Wall St. owners did not care that the underwriters killed most of our loans. They needed more, more, more, because they had squandered Aames’s cash reserves and sold off all their loans to make up the difference. They had to keep selling mortgages on the front end and discounting them to other lenders on the back end in order to keep solvent.

Soliciting Business

Now I am going to reveal one of the most carefully guarded secrets in the universe. Yes, dear readers, I am going to tell you how telemarketers get your phone numbers. I started out calling from Aames’s own mailing lists. Every week I received a huge packet of names, addresses, and telephone numbers that Aames had been compiling for the twenty odd years of its existence. Now, remember that this was a Wall St. company. They did not send me the updated lists. My lists came out of the archives. Many of the names were of people who were no longer upon this veil of tears. One very prominent name on the list was Larry Fine of the Three Stooges. I asked the district manager why I was calling from the archives, and he replied that the archive files were bigger and had more names. I pointed out that the archives were full of wrong and disconnected numbers. He replied that some of the wrong numbers might become loans. This was my first exposure to Wall St.’s favorite word: might. Wrong numbers might become loans. People might change their minds if you have the loan originators calling them every ten minutes. Some of the most incredibly stupid ideas and orders were justified by the word might.

From the time I started the job until a few months after the crash of 2000, I got enough originations to keep even a Wall St. manager happy. They were mostly from people who called in. This was good because I was still learning about mortgages. Later I discovered that title companies provided free calling lists for subprime lenders. They proved to be the perfect calling lists, with the customer’s interest rates, what companies sold their mortgages, and who had already refinanced withing the last few years.

There were about four or five subprime companies with much higher interest rates than Aames. I could ask for lists of people with mortgages from those companies. I could also ask for a minimum interest rate, and the title companies would open up their records and give me all I asked for. It was almost like picking my perfect customers. I could also ask for areas outside of Aames’s usual calling areas. I chose areas around Lake Tahoe and up north toward the Oregon border. The property values were lower so the commissions were not tremendous, but people in the wild west needed subprime mortgages too.

Eventually I went to city hall and paid for my own lists from foreclosure records and current tax records. Those cost about sixty cents a name. This gave me a pool of home owners off the Aames list and who had not been contacted by Aames. Once again I had the advantage. Aames badly wanted to make loans in Oakland because of the inflated property values. Falling down shacks were being appraised at over a million dollars. Of course this was all part of the Clinton bubble that was slowly deflating even back then.

The Back Door.

Now, you might think that with all the applications I was taking, we would be writing loans left and right. Nothing is farther from the truth. I think that the highest output the Aames Oakland office ever wrote was five loans in a month. This is because Aames changed their management, their advertising, their marketing, and their sales cycle, but they could not change their underwriters. Aames was using the same underwriters as when they were privately owned by a family named Judah. These underwriters were a very conservative lot. They were looking for high interest variable loans that could be refinanced as a lower fixed rate. Anything outside those very strict guidelines were examined under a microscope and generally rejected. Even variable to fixed rate loans were rejected for any number of reasons. The most common reasons were income or FICO score.

A common way of getting around the underwriters was to share applications with other subprime companies. If the loan looked good, but the underwriters rejected it, another subprime company’s underwriters might accept it. There are no standards in underwriting. As long as the underwriters don’t discriminate they can accept or reject any loan for any reason. It all depends on how much risk their mortgage banks are willing to take. Applications (known in the trade as paper) were swapped all the time. It was common and acceptable practice. Aames had a rule against it. Their reasoning was that the customer’s situation might change some day and we might get the loan if we resubmitted it in a few months. Considering that FICO scores drop faster than they rise, one has to marvel at the logic behind the decision.

This did not stop paper from being swapped from the Aames office. It was simply done behind management’s back. Once again only one rule applied: Thou Shalt Not Get Caught. Besides, Aames was more than happy to submit loans we picked up at the Back Door. The worst thing about it was that I didn’t get paid on any of the loans I originated which disappeared out the Back Door. Considering how many loans the Aames underwriters turned down, I hate thinking about how much money I generated for Beneficial and Countrywide that I never got paid for.

Loan Farce

Needless to say, Aames management was ready to gnaw off its collective legs because of all the loans that fell out of the pipeline. The logical thing was to expand their pool of mortgage banks. There are no rules that say a bank or corporation can’t deal with more than one mortgage bank. Either the Aames management was too stupid to think of it, which I almost doubt, or the other underwriters were not willing to work with Aames. Considering some of the crooked things I heard come out of other mortgage companies, I doubt that as well. Regardless of the reason, the Oakland office never generated more than five or six loans in any given month I worked there.

Dumping on the sales teams was management’s solution to everything. If loans kept falling out of the pipeline, it was because we were finding the wrong customers. The most amazing orders came out of the main office. For instance, we were to try to find people with B credit or better. Nobody told us how we were supposed to know their FICO scores before we pulled them. It was still our fault for not knowing. Another management obsession was the property values in Oakland. The tech bubble had expanded across the bay from San Francisco to Oakland, and property values had expanded to rival San Francisco’s. Falling down shacks that had been worth about ten or twenty thousand a few years ago were appraising for 100 thousand or more. These too-good-to-be-true property values had Aames managers slobbering like dogs in front of raw steaks.

Oakland is populated by poor minorities who were too smart to risk their homes. I had more than one Oakland homeowner tell me that he did not believe these property values. Others told me their mortgages were either paid or almost at their last payments. These people were too smart to go back into debt. The Aames managers were not about to take no for an answer. They kept up the pressure in Oakland until Aames became a very unwelcome name. Local consumer rights organizations targeted Aames as a predatory lender. What gave them their first clue?

Aames’s obsession with Oakland culminated with the institution of Loan Force. Loan Force was a retooling of the famous Sales Force software. I have worked with Sales Force in subsequent jobs and found it to be an excellent product. I could not recommend Sales Force more highly. Unfortunately it was a disaster in the hands of the Aames management team. The first things those geniuses did was load the software with the same beat up names and phone numbers that I was forced to use when I first started. They were exactly the same. The late Larry Fine’s name and phone number was still on them. Of course the first load of leads was Oakland. Oakland homeowners were so sick of being called that they just hung up on me. I ignored Loan Force (which we quickly began calling Loan “Farce”), and went back to my own lists.

Soon I got a nasty phone call from the district manager for not using Loan Farce. It seemed that he had nothing better to do than to monitor everybody through his master screen, and make sure everybody was working. I once again complained about the lists he was making me use, and again pointing out that Larry Fine had been dead since 1975. The district manager replied that I could easily have my own lists uploaded to Loan Force. He gave me the number of the person in charge and told me that it would only take three days to upload them. I called the person in charge. She said it would take two months to upload them. I called the district manager back and he refused to listen to me. He ordered that it had to be done in three days so it would be done in three days. I told that to the person in charge of uploading the lists and she laughed at me.

Loan Farce reached the peak of idiocy the next day, when the regional manager had every office in California call Oakland. The poor Oakland homeowners were getting a call from Aames every twenty minutes. The people who bothered answering responded somewhat vocally. Some of the things they told me to do were anatomically impossible. This time I called my regional manager about it. The regional manager was actually competent, but was helpless in the face of the district manager. The regional manager said “maybe they will change their minds between phone calls”. That had to be what the district manager told him to say. Several weeks later, he quit.

At that point I was looking for a new job as well. I figured out how to make my quota by making the regional think I was using Loan Farce. I called from my own lists and marked off the calls on the Loan Farce list. I was still able to work effectively while humoring the regional manager. When I got an application from Truckee when I was supposed to be dialing Oakland, I just told them it was a call back. They accepted it. After all, the rule was, Thou Shalt Not Get Caught, and they really weren’t looking very hard.

Just Reach Out and Take It

Just Reach Out and Take It

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Got Hope?

Got Jobs?Got Jobs?

For me, watching Barack Obama win the White House has been like watching a train wreck. The worst thing about it was the feeling of helplessness. Nothing I could do or say could have changed this election, and McCain would have been as bad for the nation as Obama. Having been in sales for as long as I have, I instantly saw Obama’s public relations value. From a purely public relations POV, Obama was the perfect candidate. He had black skin but he was raised in white European culture. Obama has more in common with a Republican lawyer than he does with any average voter. Yet, I have watched the spin doctors turn Obama into liberal America’s darling.

In the last three months since the inauguration, Obama has done things that would have had the rest of us howling had Baby Doc Bush done them. So far, Obama voted in favor of sheltering the telecoms who turned personal information over to Homeland Security. Obama broke his promises to raise the capital gains tax and end the Bush tax cuts. There is also an undeclared war going on in Pakistan which Obama authorized. Then there is this idiotic bailout . If Bush had done any of this, everybody would be screaming in outrage. So why does Obama get a free pass?

Maybe we are not holding Obama accountable because we have a huge emotional stake in his presidency. Twenty eight years of constant neocon rule has taken its toll. We as a nation want change so badly that we can taste it. These are the sort of emotions that Freud’s favorite nephew, Edward Bernays, loved to exploit. Bernays exploited poor self image to sell cigarettes and fear of alien cultures to sell the Cold War. There is a lot of heavy emotion associated with the Bush administration. There is the anger at being lied to, there is grief at the lives being lost in the Middle East, and there is the fear at the deteriorating economy. All of these churning emotions are so easily channeled through the simple two word phrase, “Got Hope?”

The paradox of sales is that originality in advertising rarely sells. The successful advertisement follows the same patterns, and we the consumer have been conditioned to follow those patterns. Let’s look at the original “Got Milk?” TV ad.

See what can happen to you if you don’t have enough cow juice on hand? This commercial was the first in a series of commercials that increased milk sales by over seventy percent. It was the first increase in milk sales in decades! It seemed fresh and funny but followed the traditional patterns. There was a funny vignette where the hero faces a heartbreaking loss because he didn’t have enough milk on hand. To quote the article I linked to:

Goodby’s team fielded qualitative research and learned that many consumers indeed linked milk with sweet, sticky snacks. Pushing further, the researchers flipped around the question: how do people feel when they’re eating something that demanded milk to wash it down, but don’t have milk in the house? Focus group respondents placed in this situation were upset, they felt deprived. They were able to convey viscerally the feeling of having a brownie or cookie remnants stuck in their throat, calling out for a gulp of milk to cleanse the palette.

In the best Bernays manner, the commercial uses the fear of deprivation to sell milk. Fear of not having something important or otherwise is a powerful sales tool. Next time you speak to a financial planner notice how he uses fear of an impoverished retirement to sell you an annuity. That’s how Bernie Madoff did it. He frightened his victims as to what would happen if they failed to invest for their retirements and commenced to make their fears come true. The commercial does the same thing. Only it is fear of a different sort of loss that sells milk.

Then there is the slogan that caught on like wildfire. Once again, quoting the article I linked to:

Goodby and his team used this consumer insight as the spark for what came to be called the deprivation strategy: rather than selling milk as a complement to certain foods, instead the strategy became to remind milk drinkers of the anxiety and disappointment that came when milk wasn’t available at crucial moments. Working to distill this milk-deprived emotional state into a phrase that everyone might instantly understand, Goodby coined the campaign’s well-known grammatically-challenged tagline, ‘got milk?”

It is the ungrammatical use of the word “got” that made the tagline so effective. The ungrammatical use of “got” caught the attention and held it. It was both short and memorable. It was perfect. It got to the point all a person had to do was see the tagline and all the fear of deprivation would jump out of the subconscious. These “Got Milk” signs popped up all over the nation.

got-milk-scented-bus-shelte

Since originality rarely sells, other products jumped on the bandwagon and the country was inundated with slogans like “Got Game?”, “Got Retirement?”, or even “Got Jesus?”.

got_jesus_1400x1050

There were even jokes and parodies. You can still find this T-shirt sold on the Haight-Ashbury district in San Francisco.

got-pot-tee-shirt1

The “Got Jesus” campaign rode the success of the original commercials. The “Got Milk” campaign set it all up for the Christianoids. Just looking at the “Got Jesus” slogan got people thinking of all the horrible things that could have happened to them if they lacked Jesus in their lives. The “Got Pot” parody helped keep the slogan alive and in the public subconscious. The more “Got (fill in the blank)” is used the more effective it becomes. This leads us to the Obama Campaign.

got_hope_vote_obama_tshirt-p235792798030844249qm6x_400

This must be the most effective campaign slogan ever used. It’s an old and established work horse. It has been used to sell everything from milk to religion. It is one we have grown to know and love and we all respond to it if we admit it or not. The sad fact is that we all “Got Hope”. We all have hope that Obama will turn the economy around. We all have hope that he will end the unconstitutional detainments in Guantanamo. Some people have so much hope that they are stating that Obama has already released the prisoners in Guantanamo and ended the war in the Middle East, despite all the evidence to the contrary. Obama has announced a timeline to release the prisoners and so far that is it. Obama is stepping up the war in Afghanistan while making a token show of slowing down the Iraqi war. Three months into his administration and the nation is still in the same situation it would be in if McCain won the election.

Hope is a very powerful emotional condition. People with terminal diseases have been known to continue to hope for a miracle cure as they lay dying. People in hopeless situations tend to hang on to hope as a means to hang on to their sanity. Hope, like any other emotional situation can be exploited by the public relations trade. People are supporting Obama despite the evidence because they are afraid to be deprived of hope. Right now Obama can break into their homes and rob their liquor cabinets, and they would not prosecute because they are afraid of losing their hope. “Got Hope” has caused a psychological confusion between Obama and the changes we are hoping for. It is as if without Obama the changes are impossible.

The worst thing about it is that we are still being sold. Everyday after work I go to the Barnes and Nobles cafe for a cup of tea, and every day I see more and more Obama promotional merchandise. Mugs, books, biographies and commemorative picture books are being hawked long after Obama has won the election. Promotional merchandise is not cheap to promote. The ghost writers and the behavioral scientists that put them out have to be paid up-front. The money you pay at the cash register barely covers the cost of production and distribution. If they are paying on the front end and not regaining the cost on the back-end, all this promotional garbage must be an investment. So my question is what are they going to try to sell us next?

Now What Excuse Will We Use to Invade Iran?

Now What Excuse Will We Use to Invade Iran?