Retool your sales process to meet tougher mortgage guidelines

Anyone associated with home building already knows that guidelines at Fannie Mae and Freddie Mac have changed dramatically since the beginning of the year. At last count, there were more than 160 modifications to underwriting guidelines issued in 2008. The number will undoubtedly get higher, making 2008 infamous for having the most revisions to the mortgage underwriting standards in the last 50 years.

Many home builders view the changes as simply more "piling on" for an industry already under siege. I recently spoke to a well-respected home builder who used the changes in mortgage underwriting to explain his company's poor performance in 2008. "Fifty five percent of our sales last year were to homeowners with credit scores under 680, and today we just can't get customers with those scores qualified at any kind of acceptable interest rate. It's no wonder our sales are down 40 percent."

Although I understand the problem, I respectfully disagree with the conclusion. Sure, low-credit score borrowers and those with little or no cash are having a very difficult time qualifying for a home mortgage. But for 30-plus of the last 40 years, low-cash/low-credit buyers were unable to qualify for a home, and yet the industry still found a way to sell a lot of homes.

So it's with a sense of history that forward-thinking builders are looking at their playbooks from 15-plus years ago to reinvent their companies' qualification process.

So what should you do? Begin by making the mortgage qualification process more central to the overall sales presentation at your company. The standby question "Are you pre-qualified?" is a sure way to embarrass buyers and get a less-than-honest answer. The better way to approach the subject is: "Our financing is like our homes: tailored to the needs of our buyers. Tell me about your situation."

Next, establish a goal based on the percentage of 2008 home buyers who initially were able to qualify for a mortgage but were able to become approved via "The Home Buyers Club." Under this program, credit-challenged customers work through their financing issues over months to become eligible to qualify.

The program is introduced to the customer by telling them the great news: they're ready to become a homeowner, and that although it might take some time to get them qualified, you have plans depending on their ability to meet certain criteria.

Sure this process is tough work and does not produce immediate results. But think about the alternative: endless price negotiations with well-qualified buyers versus working a little overtime for a marginal credit buyer who has few options. It seems like an easy decision for me.