The Lenders Dilemma

By Douglas Katz – 08/04/23

In the world of lending, there’s a tricky dilemma that lenders face—a tug of war between what borrowers expect and what lenders can realistically deliver. It’s what I call “the lender dilemma.” You see, borrowers often think lenders are not just money providers but also walking encyclopedias of lending knowledge. They expect us to spill all the beans and guide them through every nook and cranny of the borrowing process. But here’s the twist—many of us lenders, who genuinely want to educate and empower our clients, find ourselves caught in a sticky situation where our efforts might not always be appreciated or rewarded. So, let’s dive into this lending maze and see how we can strike a balance.

The Borrower’s Wish List

Picture this: borrowers confidently walking into a lender’s office with a list of demands—not just for the perfect loan, but also for a crash course in lending 101. They want to know everything—from interest rates to loan programs, all the way to the fine print. And why shouldn’t they? The internet has turned everyone into a researcher, and borrowers want transparency and personalized guidance.

The problem is that there are few other jobs where this expected.  Nobody asks their plumber for a detailed course in pipefitting.  They don’t go to a restaurant expecting to learn the granular details of food preparation.  Somehow, however, borrowers expect lenders to do this.

This is not to say that lenders need avoid questions or prohibit them, but it is fair to expect that the questions be detailed and reasonable.  For example, a question about adjustable mortgages is appropriate as is a question on that lenders process.  It is unreasonable, however, to sit down, say I am a first time homebuyer so please tell me everything. There are numerous places to find this and a borrower should be enough invested in their own success to research, especially in areas like hard money.

The Heart of a Conscientious Lender

As conscientious lenders, we genuinely care about our clients. We want to see them make informed decisions and sail smoothly through the lending process. So, we happily take up the mantle of financial educators. We explain everything in detail, answer their queries, and provide valuable insights. But here’s the rub—not all borrowers appreciate the effort we put in, and some of them might not even stick around to get the loan from us!

This again is heavily rooted in the view that the education and information that lenders provide is obligatory.  It is not. What separates and differentiates good loan providers is this commitment to the client and their experience.  The problem is that the conscientious hearted lender often gets their heart broken.  The craziest part is that there are educational resources, sometimes that are required for the loan program, and the borrower will try and find any and all ways out of using that in favor or exploiting the good graces and helpful nature of a committed lender.

Risk in Being Helpful

One of the biggest fears we conscientious lenders face is that our own generosity might backfire. You see, some borrowers take the knowledge we offer and shop around like savvy bargain hunters. They use the insider information to negotiate with other lenders, leaving us in the dust. In a cutthroat lending market, we could be left empty-handed, while they go off with a sweeter deal they found elsewhere.

This one especially stings.  I understand that lending is commoditized in many ways which is why some lenders choose to differentiate through education.  Simply put, this should cost more and borrowers should expect it.  Every minute spent on non-revenue generating activities, to include education, degrades the profitability of a deal.  Couple this with low price providers who do nothing beyond taking the application, processing the deal and funding.

I have heard more times that I would like to recount the same excuses from clients.  They say things like “you were so awesome and now I really understand the process, but…” or “I am sorry but it is business and I can save 0.125%, but thanks so much.”  They leave out the working for free part and through their actions place a $0 value.  The question is that if a preponderance of borrowers think in these terms, why should a lender play the same game and not value their time?  Their time has value whether it is in the context of work or personal/family time and no client should expect otherwise.

Getting Rewarded for Being Awesome

Now, let’s talk about appreciation and incentives. This comes down to just being a decent person who is as conscientious as you expect your lender to be.  Would it be “just business” if you worked for free and your employer could save money by no valuing anything that you do aside from the minimum in your job?  I surmise that it would not and you would be exceptionally unhappy.  As lenders, all we expect is to act as such.

If a lender does a great job for you pre-application, acknowledge it.  I want to be clear that this needs to go beyond the aforementioned platitudes.  If they are truly that good, be loyal and conscientious yourself.  Understand that you may pay a bit more, but this is because they provided something of value.  Remember, consumer behavior shapes the market and the point that their are no incentives to provide education as part of their job will be the point that lender no longer feel compelled to do so.

Joining Forces with Financial Educators

Lenders should not have to carry the entire burden of educating borrowers on their shoulders and borrowers should accept this without question. The main responsibility should always be on the borrower who is committing to a large loan.  Many borrowers spend more time researching their next smartphone than on a loan for a purchase that they may be considering, which makes very little sense.

The good news is that there are a lot of resources outside of the lender.  All stakeholders can team up with financial educators and counselors, many of which are inexpensive or free, which can be a win-win. The lynchpin of this, however, is in the hands of the borrower.  They should be neither surprised or offended if a lender declines to devote hours in the service of educating them and take ownership of their own financial destiny.

Borrowers’ Behavior Shapes Business Practices

In the wild world of lending, the lender dilemma is an ever-present challenge.  Striking the balance between helping and being generous with their time and knowledge with the need to make a living and support their family is a constant effort.  Most lenders will communicate that one of the highlights of their work is changing lives and education is part of that, but volunteerism is not part of their job description.

There is, however, a solution, and it hinges on borrowers’ actions aligning with decency and client loyalty for services of genuine value. The lending industry is shaped by consumer behavior, and in the end, it will mirror the values and integrity of borrowers when choosing their financial partners. By fostering a collaborative approach and encouraging borrowers to be active participants in their financial education, we can build a lending ecosystem where mutual respect and understanding thrive. Offering incentives for borrower loyalty can also reinforce the value of conscientious lenders and create a win-win situation for everyone involved. So, let’s embrace this challenge, strike the right balance, and together, ensure the lending game remains strong, fair, and beneficial for all parties.

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