Dec. 9, 2017: Letters re: the wholesale channel, employee retention, attending conferences, and discount points

Wholesale, retail, or correspondent – just do it right

This week US Bank “bailed and sailed” on the wholesale channel. Many lenders are having layoffs in the holidays, unfortunately. Others have some combination of losing agency approvals and having significant layoffs, but don’t make a formal announcement. Often the result is quietly & gradually closing their doors, or searching for a buyer. As industry architect Angelo Mozilo would say, lack of liquidity will kill a company faster than anything. The commentary had this to say early in the week. “How long will venture capital firms enjoy being in a declining margin business like residential lending, historically dominated by individual, family, or employee-owned companies?” And I mentioned rumors and unpublished news swirling about well-known lenders losing agency approval, laying off staff, being acquired, or closing their doors, especially west coast wholesalers.

The paragraph nudged Andy Harris, president of Oregon’s Vantage Mortgage Group, to telegraph, “I believe there is a huge opportunity in wholesale for those investors and others that see it, but it starts with the originator embracing independence and not steering or selling one lender at higher margins. Retail lender margins will be restricted through consumer awareness and education which I believe we will see and many originators seeing how much better wholesale is. What is crazy is that these company egos on retail is pushing so much on recruiting, I don’t see how it is sustainable. But it is up to the originator to self-educate and change how this works ‘finally’ after all these years of lenders controlling.

“I certainly know there will be many sales and mergers. US Bank’s exit was no surprise, given the competition in the wholesale arena regarding technology, pricing, and power that many wholesalers are offering to independents and who must compete. They need to be “all in” for wholesale and I believe the right companies can thrive in this channel. And this is not confined to the wholesale channel. We will see this happen with many in the correspondent and retail space.

“I believe that the wholesale channel provides a great opportunity, and lenders need to see this opportunity and be ‘all-in’ wholesale today. There are some great wholesalers all-in and others of course with the retail influence also committed fully to the channel, but the channel is the best it has been in history and some are seeing that others are not.  If there were any issues, we are to blame as an industry to let these lenders on the retail side get away with what they have. Nothing personal to good people or companies, but originators have a responsibility to their client and need to embrace integrity by choice and not steering.  Wholesale lending and independent origination needs the health market share back. Consumers will not accept these high retail and correspondent margins in the future- the technology and awareness will restrict these margins.

“There are some great wholesalers and others of course with the retail influence also committed to the channel, but the channel is the best it has been in history and some are seeing that and coming. Others are not. If there were any issues, we are to blame as an industry to let these lenders on the retail side get away with what they have. Nothing personal to good people or companies, but originators have a responsibility to their client and need to embrace integrity by choice and not steering.

“The issue is that originators are feeding those that train them to steer and they don’t see all the programs, pricing, and options today.  The retail side invests tons of $ to control the minds of everyone, but facts and math win. I get it, all non-producers make money off that side outside of origination, but originators need to open their eyes and learn about independence. If they do this, it will change the future of our industry for the better and certainly a better outcome for their careers and clients.” Thanks Andy!

Conferences: concierge desk at 10AM?

A while back I raised the issue of the continued “male, frail, and pale,” and lack of anyone under the age of 35 attending, when it comes to mortgage conference attendees. It prompted the CEO of one well known lender to send, “I’m sure you will get a few ‘old white men’ writing to you so I thought I’d keep it brief. For those young adults who aren’t interested in attending conferences I have this to say:


“True statements for sure. I could see how people could get annoyed by some of the things that go on at conferences, but I’ve never attended a conference without making a connection that helped me be one of the first movers on a new product, software, regulation or something else.

“I too was once young (did I really say that?) and I understand feeling somewhat out of place with older industry veterans. But I also found that conversing and interacting with them proved invaluable.

Conferences and face time are a great way to forge relationships. Many believe still that relationships are what this business is about. In an old-fashioned way, you cannot survive without them. Warehouse lines, vendors, Investors and other relationships will allow you to survive the next correction or just grow and compete. It might be nice to at least make a minimal effort for social interaction. People don’t try hard to help arrogant, self-entitled, reclusive, unsocial peeps as much as ‘that cool gal who is so smart and funny and we had a drink and laughed together that time. I trust her because I saw in her eye she was sincere.’

“Not every ‘old industry veteran’ is clueless. If you take the time to stop labeling an entire group as such (which by the way is basically ageism- as insidious perhaps as some other “isms”) then you’ll see that there are many different types of people. e.g., I could say that ALL younger self-entitled twenty somethings are probably going to cause the next crash because they always got a trophy and their mommy always helped them on their homework, but I would probably be seen as a salty old guy.

“If our industry meets regularly, we can share information and collaborate. We can stay strong when faced with opposition from the Hill. Something we need to be keenly aware of always.

“Older people tend to have families, and as such they can travel to one place and in a few days, see everyone they need to see in a very organized and efficient way. Traveling all over the country to visit with investors is a total waste of time and by the way creates a larger carbon footprint.

“Listening to the speakers is admittedly the last thing in which many folks are interested – myself included. Many of them are dry and horrible speakers. But for newbies it should absolutely serve as a view into the insight or lack of insight in the industry. What if you attended lots of sessions and found out you are smarter than anything that’s been said. Then you could revolutionize the industry with your brilliance. Please, do that – we need you! There are merits to conferences. Human beings talking with human beings about giving loans to human beings. What an idea?!”

Discount points – keeping the borrower in mind

Last Saturday the commentary had TB’s wrote about how the Dodd/Frank regulatory changes “regarding overage were that LOs could no longer be compensated for the overage, but there was nothing that prevented the company from profiting the same way. I’ve worked several places and seen a common practice of pricing above par to line the company’s coffers. It appears to be a situation of following the letter of the law, rather than the intent. those employers did not compensate the LOs for that, so what used to be an overage split between the company and the LO back when overages were permitted, has now become all company profit. This practice certainly does the consumer no good.”

Andy M. had this to say. “So, TB believes if the loan officer were to be compensated, the practice does well by the consumer, and becomes acceptable? Odd! Why allow an overage in the first place? My goal is to do the right thing for the consumer all the time.”

AC responded with, “One commenter, TB, mentioned that the retention of “overages” by lenders may not violate Dodd-Frank. I’d caution to carefully consider otherwise. In the event you are a LO Organization under Regulation Z, basically a table funder/broker, there could be LO Comp rule issues to consider. Apart from that, ask yourself: does the practice seem deceptive or unfair? Would you want to explain it to an examiner? Perhaps there is a UDAAP issue. Lastly, you’ll want to look at the fair lending implications. Do your “overages” trend with certain loans, certain borrowers, certain products? Do your competition matches and “overages” have an inverse relationship? Do your competition matches favor certain borrowers while your “overages” favor others?

I think it could be said that if you have a clear and consistent method of accounting for overages, there probably is not a Dodd-Frank issue. But the more the “overages” look like a discretionary profit mechanism or an informal point bank, the more likely there could be issues. In most case, I’d wager these overages are akin to the discretionary rate pricing markups that were so heavily litigated in the vehicle lending space. Those cases did not end well for the lenders involved.

Employee retention

Steve Brown with PCBB put forth, “Pew Research reports some interesting things about employees in this country. For instance: there are more than 150mm employees in the workforce, membership in unions has declined from a peak of 35% back in 1954 to only 11% today, 71% of people work in the service sector, 10% of the workforce is self-employed, and median annual earnings of full time workers ages 25 to 34Ys old is about $50,000 for those with a bachelor’s degree or more vs. only $30,000 for high school graduates.

“The Bureau of Labor and Statistics (BLS) reports the median number of years employees remain in a job fell about 9% to 4.2 years in 2016 from 4.6 years in 2014. The reality of this statistic makes life difficult for managers. Yet, there are ways to beat this number. When it comes to retention, listening to and learning from your employees is critical.

“A recent study by BambooHR, a provider of HR Software Solutions, found a notable 44% of respondents said a boss has been the primary reason for leaving a job. Specifically, respondents cited a boss’s management style, condescending attitude, temperament, inappropriate behavior and harassment as top reasons for leaving. The study highlights the bad boss behaviors that employees deem the most egregious. Topping the list is taking credit for employees’ work. Notably, 17% of respondents who said a boss had been their primary reason for quitting said they left because their boss stole their ideas. Interestingly, age played into this as well…. you clearly need to watch younger employees for signs they could be on their way out.

“Coming in at #2 on the list is a boss who doesn’t appear to trust or empower employees. That is followed at #3 by a boss who doesn’t appear to care when employees are overworked and #4 which is a boss who doesn’t advocate for employees when it comes to monetary compensation. Rounding out the top 5 is a boss who hires and/or promotes the wrong people.

“The study found notable differences between how men and women view the behaviors. A higher percentage of men felt the top bad behaviors were not at all acceptable or would be a deal breaker that would make them want to quit when compared to the percentage of women.

“The study also found sizeable differences between the responses of non-managers vs. managers. For instance, when it comes to taking credit for employees’ work, not trusting or empowering employees, and overworking employees – 20% fewer managers feel these behaviors are unacceptable.

“Besides ensuring your managers are steering clear of the list above, what are some other ways to keep good employees longer than the median 4.2 years? Entrepreneur magazine reports that promoting appropriately, paying according to the employee caliber, soliciting and applying employee input, encouraging innovation and using healthy competition for increased engagement are critical. Each one is an important way to retain your best employees.

“While every bank is different, it may be time to ponder some of these findings along with your employee development programs. The growth of your bank relies in large part on your human resources, so keeping the best people around will most certainly lead your bank to success and have the greatest impact.”

Two shepherds lean on their crooks at the end of a long day. The first asks the second, “So, how’s it going?”

The second one sighed and shook his head. “Not good. I can’t pay my bills, my health isn’t good, my kids don’t respect me, and my wife is leaving me.”

The first replied, “Well, don’t lose any sheep over it.”

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Rob Chrisman