Mar. 18: Notes on the aging lender workplace, credit quality & loan program trends, wire fraud example

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Here’s a case study for anyone interested in how, despite plenty of supposed internet security, money was stolen from a lender. It all began with an e-mail address that was compromised. “A title lawyer’s email account was hacked by the thieves. A mortgage company had a refinance closing scheduled through the title company on Dec 23, which was the Friday before Christmas and a three-day weekend. The mortgage company received an email from the title lawyer’s office with new funds wire instructions. Since the lawyers account was hacked by the thieves, it had the correct senders email address for the lawyer’s office and appeared to be from the title company.

 

“It was a busy Friday before the Christmas holiday and the mortgage company did not call the lawyer’s office to verify the new wire instructions. Staff from the lender wired the funds to the new address provided by the hackers. On December 27, the mortgage company was notified that the Title Lawyer never received the funds and wanted to know where they were. The mortgage company contacted the sending and receiving banks to try to get the wired funds back. It had vanished.”

 

And regarding hiring and personnel demographics, I received this note from California. “I can’t help but wonder, when do we run out of ’35-year veterans’ to celebrate for leadership roles in our space? In ten years, will we still be recycling the same talent? Or does has the industry finally give way to a new generation of talent? Will we start recruiting 75-year-olds?

 

“What’s frustrating is the mortgage space used to be one of opportunity for young talent to be given ‘their shot,’ e.g., I was promoted at a large thrift to a senior leadership role at age 28. But post-2008 I don’t see that kind of investment anymore.

 

“Are organizations playing it too safe post-crash?  I don’t believe it’s for lack of qualified talent as I have many peers who have deep experience like I do, but are a part of a younger cohort. I have the sense, however, that many firms can’t, or won’t, take a chance on a candidate without 25-30 years of experience for fear of not generating results, although they may have a track record of having done so in their past.

 

“I think the mortgage industry as a whole needs to quit talking out of both sides of its mouth. With few exceptions, it acknowledges a ‘brain drain’ of talent, lack of new human capital, and moans over millennials not entering the space, yet goes back to the same ‘talent well’ time and again and does little to cultivate future leaders. The labor market has firmed and there are more options than ever to pivot into a career outside of the mortgage business. We need to be careful to not bleed out talent who is ready for the next level of opportunity.”

 

Shifting gears to warehouse bank advice for any mortgage banker doing non-QM loans, I received this note from a warehouse expert. “To the best of my recollection, BOFI’s warehouse platform will only fund on a warehouse line if the mortgage banker is an approved correspondent. Gateway Bank FSB, also offered warehouse lines on the same basis until 2015 when they shut down platform due to be under-capitalized. Also, many warehouse lenders will carve out 25% of the line for non-QM loans but a lender must have a few approved investors, not just one.”

 

On the subject of current, and potential future, credit conditions and loan programs, Paul F. observed, “I am suspicious of anyone still parroting the standard BS blaming just the lowered underwriting standards being the cause of the ’08 crash. It did have a part to play, but the bigger picture should include corrupt brokers and appraisers. And I think that the biggest factor is the ol’ sub-prime 2/28 ARM where the initial rate was used to qualify instead of a fully or partially indexed rate. The real failing here was that when these 2/28s adjusted the first time (‘came home to roost’), payment shock killed the dream of home ownership and folks just sent in their keys and moved on. I was an AE at GreenPoint Mortgage in the early 2000s, we closed tons of ‘no job’ and ‘low or no doc’ loans, but the qualifying standards were ‘make sense’ (no need to detail that here) and I believe that the clear majority of these loans were solid and performed well. Just tryin’ to set the record straight here!”

 

And in what is turning out to be a hot topic, and an example of the residential lending industry policing itself, there is this note from Bryce Schetselaar regarding refinancing U.S. veterans. “A little while back you had some people angrily commenting about the 3/1 ARM for Vets. As a disclaimer, I don’t own or work at a VA sweat shop and don’t believe I have ever originated a 3/1 ARM. I hate how VA sweat shops go after loans right after funding – there should certainly be a 6 month IRRRL restriction akin to that of FHA (as would be nice with all loans).

 

“If you do the math and even take into account that a Vet is going to pay 3 points upfront to get the 2% 3/1 ARM, the break-even compared to a fixed rate at 4% is 93 months in the future! A shade under eight years! This is a complete ‘apples to apples’ comparison where the same payment is made in both scenarios. So how many Vets are going to be in their home for 8 years, let alone be in their loan for 8 years? The average has long been much shorter than that. This is assuming a worst-case, adjust to the max scenario each year–probably not likely in and of itself.

 

“So why is it in the best interest of the industry to cut down an option that would be better for the majority of Vets? I think our industry is just so drunk on the profits of the 30-year fixed agency loan that we try to convince everyone that it is always the best option. That is clearly not the case. Let’s work on getting the soft pre-payment going for VA loans (to refi only) along with other loans and leave our clients with options to make the choice for themselves.”

 

(No joke today. Instead, a lengthy parable that I received from a few folks, and some would say applies to certain aspects of lending, perhaps the credit decision. It was not written by me. Rob.)

 

Twenty years ago, in Nashville, Tennessee, during the first week of January, 1996, more than 4,000 baseball coaches descended upon the Opryland Hotel for the 52nd annual ABCA’s convention.

While I waited in line to register with the hotel staff, I heard other more veteran coaches rumbling about the lineup of speakers scheduled to present during the weekend. One name, in particular, kept resurfacing, always with the same sentiment — “John Scolinos is here? Oh, man, worth every penny of my airfare.”

Who is John Scolinos, I wondered. No matter; I was just happy to be there.

In 1996, Coach Scolinos was 78 years old and five years retired from a college coaching career that began in 1948. He shuffled to the stage to an impressive standing ovation, wearing dark polyester pants, a light blue shirt, and a string around his neck from which home plate hung — a full-sized, stark-white home plate.

Seriously, I wondered, who is this guy?

After speaking for twenty-five minutes, not once mentioning the prop hanging around his neck, Coach Scolinos appeared to notice the snickering among some of the coaches. Even those who knew Coach Scolinos had to wonder exactly where he was going with this, or if he had simply forgotten about home plate since he’d gotten on stage. Then, finally…

“You’re probably all wondering why I’m wearing home plate around my neck,” he said, his voice growing irascible. I laughed along with the others, acknowledging the possibility. “I may be old, but I’m not crazy. The reason I stand before you today is to share with you baseball people what I’ve learned in my life, what I’ve learned about home plate in my 78 years.” 

Several hands went up when Scolinos asked how many Little League coaches were in the room. “Do you know how wide home plate is in Little League?”

After a pause, someone offered, “Seventeen inches?”, more of a question than answer.

“That’s right,” he said. “How about in Babe Ruth’s day? Any Babe Ruth coaches in the house?” Another long pause.

“Seventeen inches?” a guess from another reluctant coach.

“That’s right,” said Scolinos. “Now, how many high school coaches do we have in the room?”  Hundreds of hands shot up, as the pattern began to appear. “How wide is home plate in high school baseball?”

“Seventeen inches,” they said, sounding more confident.

“You’re right!” Scolinos barked. “And you college coaches, how wide is home plate in college?”

“Seventeen inches!” we said, in unison.

“Any Minor-League coaches here? How wide is home plate in pro ball?”

“Seventeen inches!”

“RIGHT!  And in the Major Leagues, how wide home plate is in the Major Leagues?

“Seventeen inches!”

“SEV-EN-TEEN INCHES!” he confirmed, his voice bellowing off the walls. “And what do they do with a Big-League pitcher who can’t throw the ball over seventeen inches?” Pause. “They send him to Pocatello!” he hollered, drawing raucous laughter. “What they don’t do is this: they don’t say, ‘Ah, that’s okay, Jimmy. If you can’t hit a seventeen-inch target? We’ll make it eighteen inches or nineteen inches. We’ll make it twenty inches so you have a better chance of hitting it.  If you can’t hit that, let us know so we can make it wider still, say twenty-five inches.’” 

Pause.

“Coaches… what do we do when your best player shows up late to practice? Or when our team rules forbid facial hair and a guy shows up unshaven? What if he gets caught drinking? Do we hold him accountable? Or do we change the rules to fit him? Do we widen home plate?”

The chuckles gradually faded as four thousand coaches grew quiet, the fog lifting as the old coach’s message began to unfold. He turned the plate toward himself and, using a Sharpie, began to draw something. When he turned it toward the crowd, point up, a house was revealed, complete with a freshly drawn door and two windows. “This is the problem in our homes today.  With our marriages, with the way we parent our kids. With our discipline. We don’t teach accountability to our kids, and there is no consequence for failing to meet standards. We just widen the plate!”

Pause. Then, to the point at the top of the house he added a small American flag. “This is the problem in our schools today. The quality of our education is going downhill fast and teachers have been stripped of the tools they need to be successful, and to educate and discipline our young people. We are allowing others to widen home plate! Where is that getting us?”

Silence. He replaced the flag with a Cross. “And this is the problem in the Church, where powerful people in positions of authority have taken advantage of young children, only to have such an atrocity swept under the rug for years. Our church leaders are widening home plate for themselves! And we allow it.”

“And the same is true with our government. Our so-called representatives make rules for us that don’t apply to themselves. They take bribes from lobbyists and foreign countries. They no longer serve us. And we allow them to widen home plate! We see our country falling into a dark abyss while we just watch.”

I was amazed. At a baseball convention where I expected to learn something about curve balls and bunting and how to run better practices, I had learned something far more valuable.

From an old man with home plate strung around his neck, I had learned something about life, about myself, about my own weaknesses and about my responsibilities as a leader. I had to hold myself and others accountable to that which I knew to be right, lest our families, our faith, and our society continue down an undesirable path.

“If I am lucky,” Coach Scolinos concluded, “you will remember one thing from this old coach today. It is this: ‘If we fail to hold ourselves to a higher standard, a standard of what we know to be right; if we fail to hold our spouses and our children to the same standards, if we are unwilling or unable to provide a consequence when they do not meet the standard; and if our schools & churches & our government fail to hold themselves accountable to those they serve, there is but one thing to look forward to…’”

With that, he held home plate in front of his chest, turned it around, and revealed its dark black backside, “…We have dark days ahead!”

Note: Coach Scolinos died in 2009 at the age of 91, but not before touching the lives of hundreds of players and coaches, including mine. Meeting him at my first ABCA convention kept me returning year after year, looking for similar wisdom and inspiration from other coaches.  He is the best clinic speaker the ABCA has ever known because he was so much more than a baseball coach.  His message was clear: “Coaches, keep your players—no matter how good they are—your own children, your churches, your government, and most of all, keep yourself at seventeen inches.”

And this my friends is what our country has become and what is wrong with it today, and now go out there and fix it! Don’t widen the plate.

 

 

Rob

 

(Copyright 2017 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)