Nothing ruins your Friday more than realizing it is only Tuesday.
We’ve been talking a lot about M&A activities in the marketplace with highly capitalized mortgage firms growing their retail operations. One company has grown significantly over the last year, and that is MiMutual Mortgage, the retail brand for Michigan Mutual, a Fannie, Freddie, Ginnie endorsed Lender based in Port Huron & Southfield, Michigan. An active member of the MBA, MiMutual has added large scale offices in key states around the country, but their strategy is unique, as described by Dr. Rick Roque, their Managing Director of Retail. “Our model is leadership driven”, said Dr. Roque, “we recruit or purchase groups (or companies) who exhibit strong leadership skills and who employ high integrity people at all levels – we understand the production volume will grow from there – but we consolidate regional production with a goal of establishing a lending fulfillment center with a target production goal of $15M-$25M/month.” If interested in a confidential discussion, you may email Rick or call 408.914.5895.
And Pacific Union Financial’s Distributed Retail Division is looking for experienced and motivated retail teams in the Pacific Northwest and in the Atlanta, Georgia markets. “Make your move today and become part of our fast-paced, growing sales team that is on the rise. For all the details, please contact Lora Harris, assistant to EVP, Retail Channel Manager, Brian Mitchell or visit www.pacificunionfinancial.com for more career opportunities.”
On the flip side remember that last week news came to light that HSBC Holdings CEO Stuart Gulliver was close to announcing a major reduction of the global workforce by the end of 2017. The bank likely will eliminate 10,000 to 20,000 positions, insiders say.
And while we’re talking about trends, a survey of 16 big global lenders revealed that the total bill for legal matters has hit $300 billion.
Yesterday the commentary mentioned the CFPB fines for California’s Guarantee Mortgage, and mistakenly noted that Guarantee had been purchased by American Pacific. That was incorrect, and I received this note from APM’s President. “American Pacific Mortgage did not buy Guarantee Mortgage or any of its assets, nor have we ever employed any of the practices referenced in the consent order released on Friday. Guarantee Mortgage managers, originators and staff employees have pursued positions at several area competitor mortgage banks, including American Pacific Mortgage. The former Guarantee Mortgage staff that has joined American Pacific Mortgage have a proven track record and are top notch mortgage professionals who have fully adapted to the American Pacific Mortgage business model and continue to provide excellent service to the consumers in their marketplace.” I apologize for any confusion.
Speaking of origination channels, you non-bank LOs, don’t forget that effective July 1st, the NMLS will include the Rules of Conduct for Students into the online courses. The NMLS will ask providers who offer online courses the status of the implementation within the next couple of weeks. The FAQs on the ROC and additional information can be found here.
Switching to banks briefly, First Harrison Bank ($471mm, IN) announced it will acquire The Peoples Bank of Bullitt County ($239mm, KY) for $29.5mm in cash (50%) and stock (50%).
(For the next couple weeks I am doing some bicycling and traveling in Croatia. During this time several “guest writers” are doing the bulk of the 6-day a week commentary, some queued up in advance but in random order, and I hope that readers enjoy the change of pace as well as the interesting perspectives. I am sure everyone understands that there could be considerable delays in me responding to any e-mails, and you can write to the contributors directly.)
A Modern Den of Thieves
“They make money the old fashioned way. They earn it”, spoken by John Houseman in a Smith Barney commercial from 1979, has always resonated with me. Regardless of your thoughts on the company that was spreading the message, the underlying theme that business is earned and not given or stolen is powerful. To me, “earning it” means fair competition and following the rules. Nothing was stolen or obtained through an underhanded approach. Unfortunately, from my perspective, a large portion of the mortgage industry today does not appear to share that same understanding. There are some good companies out there that are on the right path but it seems like time and time again, those that you hear about publically, cannot grasp the concept of “earning it”.
You see this with branch focused recruiting rather than branch building. When branch thefts occur, the prior employer receives no compensation from the new employer. The branch pipeline is stolen by the new company and most of the time there is quite a bit of trailing expenses at the prior employer with no future revenue from the branch to offset it. Nothing is earned with this approach, it’s stolen. What ever happened to organic growth where teams are built from the ground up?
You also see some mortgage companies paying a signing bonus if the originator can bring a pipeline. There is nothing wrong hiring experienced staff but there are acceptable methods and unacceptable methods. Commonly in this industry you see an employer paying marketing dollars, buying business cards and reimbursing expenses to originators for them to seek out new business. Additionally, those originators are solely employed by the mortgage company. This means the contacts they make, the customers they develop and the loans in the pipeline are the property of their employer. It doesn’t matter if the employee is commission only (read your employment agreement). The new employer knows all of this but most of the time will turn their head the other way and claim ignorance (which the legal system does not like). The executives of these companies know they are stealing loans but find a way to justify it internally. Earning business and employees is not done through theft.
Those are some sales examples but think about the operations side. One of the key factors, in my opinion, that has almost doubled the compensation for operations position is companies failing to develop their own talent. Need another underwriter? Okay, who has a bunch we can steal from and pay an additional $2,000/yr? Repeat that cycle several times suddenly a mid-tier position is paying 6 figures. According to the Bureau of Labor Statistics the median age of the United States labor force in 2012 was 41.9 years old. An article published by Mortgage Professional America in December stated the average was 54 years old in the mortgage industry. I could not find the average age of the labor force in 2012 but regardless that is a shocking spread. My belief is that the primary reason is employers failing to develop their own talent. The ease of theft far outweighs the responsible approach of new development. Here at 360 Mortgage Group the vast majority of our employees were college graduate recruits. We spent the time, money and energy to help create the employees that will staff our industry in the future.
This is also seen with consultants and experts within the industry. They’re not all bad. But some charge exorbitant fees and regurgitate the same suggestions from 30 years ago. Then when the lender hits success on their own you see the consultants try to ride the coat-tails of the lenders success. I’ve witnessed a consultant given confidential information and within the same day pick up the phone to share it with other parties. All this is done so the consultant can justify their value to other parties and feel relevant. But again, rather than develop their own confidential information and business methods, it’s much easier to steal from another or re-use outdated practices.
This is tangentially visible in the software side of the industry as well. Now, these aren’t stolen but it is an example of the lack of internally driven development. The vast majority of origination systems, pipeline management systems and servicing solutions are based on technology over 20 years old. These systems are insufficient and outdated. Proof is clearly seen when new regulation is adopted. These vendors need six to twelve months to retool their software. You can contrast this with lenders, such as my employer 360 Mortgage Group, who develop their own software and implement new regulation (i.e. HVCC, MDIA, and TRID) in under two weeks. Again, the practice within the industry of re-using what already exists instead of spending the time, money and energy to develop their own is blatantly apparent.
Lastly, take a look at public mortgage companies, private equity and hedge fund startups or acquisitions. They hire the individuals from the big name mortgage industry players pre-crash and tell them to recreate exactly what they did prior to the crash. The stories are all the same. You hear them at industry events and even public speaking engagements. ‘When I was with XYZ Company we had our best years ever with record production and it was all absolutely amazing. Well that was until we declared bankruptcy.’ I don’t understand why the ‘until we declared bankruptcy’ part doesn’t resonate with more folks. The same insanity is visible today when looking at the servicing values these companies pay to the originators. Some of these pay out 4 or 5 years of future servicing cash flow today meaning they will not have any cash profits until years 6 plus. Crazy schemes like MSR financing or secured debt financing are a proven failure. Imagine borrowing the four years of future revenue to pay to your originator and then have the loan payoff in one year. That’s the market we are in today.
Not all organizations are bad and there are quite a few doing it the proper way. Don’t take this editorial as a lecture to never hire experienced staff or that you must always develop everything on your own. Experience is a must have and nobody is perfect. The entire point is to obtain business (whether that is loans, employees, etc.) properly with a strong ethical focus and stop the lack of innovation (aka laziness).
In closing, if you find yourself offended by this article it is for either one of two reasons. (1) You are offended because none of this applies and you would never consider any of the actions alleged in which case you should be offended by your peers within the industry. Or, (2) you are offended because this is how you conduct your business. Which one are you?
Turning to the markets, there isn’t much going on. There was nothing of consequence yesterday, nor will there be today that is scheduled – so the focus is on Europe. And here in Croatia, north of Greece, everyone seems to having a fine time and spending lots of money. A spokesman for the European Commission said that the EC will keep working on a solution to the Greek Crisis but that its own proposals would be the starting point (Angela Merkel said that creditors’ proposals are the only ones on the table).
French Finance Minister Michel Sapin said that “Grexit” would “not be serious from a financial or economic point of view.” And perhaps stating the obvious, Barack Obama spoke about Greece at the G7 Summit, saying “If both sides show sufficient flexibility, we can get this problem resolved….but it will need tough decisions from all involved.”
We closed out the 10-year on Monday about where we began, at 2.40%.
Under the age of 40? You won’t understand. Part 2 of 2.
I thought that I was supposed to accomplish something before I was allowed to be proud of myself.
I just can’t recall how bored we were without computers, Play Station, Nintendo, X-box or 270 digital, and TV cable stations. We weren’t!!
Oh yeah … And where was the antibiotics and sterilization kit when I got that bee sting? I could have been killed!
We played “King of the Hill” on piles of gravel left on vacant building sites and when we got hurt, mom pulled out the $1 bottle of iodine and then we got our backside spanked. Now it’s a trip to the emergency room, followed by a 10 day dose of antibiotics and then mom calls the lawyer to sue the contractor for leaving a horribly vicious pile of gravel where it was such a threat.
To top it off, not a single person I knew had ever been told that they were from a dysfunctional family.
How could we possibly have known that?
We never needed to get into group therapy and/or anger management classes.
We were obviously so duped by so many societal ills, that we didn’t even notice that the entire country wasn’t taking Prozac!
How did we ever survive?
(Copyright 2015 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.)