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Broker v banker; brand v no brand, big v small....decisions, decisions... The last 7 years we have become a business that has encouraged the detachment of the mind and soul from the daily decisions. Once Automated Underwriting took off in 99-00, we began to say “you don't need to underwrite the loan, the system does it all!". We started hiring "DU monkeys" whose job was to "plug data in" and "make it work". We took kids from the video game world and told them it was another video game -- keep plugging in info until you get the green light! We called them validators -- but they couldn't validate what they couldn't understand; they didn't know what they were asking for or trying to prove.

SO the best part was that when they couldn't make the green light appear we gave them the ability to ‘state’ any income or asset they wanted to make the green light appear. It didn't matter whether it made sense or not; the borrower had the right FICO and LTV, fund it! Then if the janitor making $200K was even too much for them to write down there was always our friend NINA! We kidded ourselves into thinking this all made sense AND we were giving people what they wanted.

Wall Street was the devil. They were tempting us with product that continued to push the envelope of reality. Their thirst for yield kept pushing LTV, FICOS and documentation requirements to new limits. There had always been programs out there that had some of these characteristics but never all together. You had no down payment deals but credit and docs had to be there. You had bad credit but LTV and docs had to be there. You had no doc deals, but you had LTV and collateral. Now we had it all, just price for the risk!!

What Wall Street didn't remind you was that they had the right to push back just about anything. Have you ever really read a Wall St contract? If you sign it as is or if your employer did, you have signed your life away... AND that is where we are today. Many organizations listened to the devil and now have no life in their chosen profession. I have visions of the bad boys in Pinocchio who blindly followed the good times, chasing the man with the candy and toys out to the island where he trapped them and turned them into donkeys. The similarities are too many and too close to home. That island is Alcatraz for the worst offenders today.

I have been approached by dozens of managers and executives over the past few months, who are in this position. Some of them are very talented builders of businesses who have made themselves, their companies and their people a lot of money. Their people are loyal and look to their leader like Moses begging him to take them back to the Promised Land. But like Sodom and Gomorrah, it has burned down. That life can't be returned to. Most of these folks are in denial and are trying to keep their teams together, valiantly thinking of their families and their mouths to feed. Everyone needs to lose all hope for those days to return and begin to envision the right way, and then progress down the right path can be made.

We are now under the hot lights of every legislator and Attorney General in this land. (How did you like the picture of the executives lined up in front of Senator Dodd's committee the other day, like Enron revisited). It is very hard to explain how we used "liar loans" to give people what they wanted instead of using our professionalism to discover what they needed as a fiduciary responsibility. You can be sure that "suitability" and "fiduciary responsibility" will become part of our lexicon in the years ahead. It was what turned the financial industry around on the investment side. We can only hope that one strong federal ruling will supersede the plethora of state laws that are death by a thousand paper cuts.

Soooo broker vs. banker, brand vs. no brand? I think this Armageddon proves that being public, large, and branded doesn't protect you from harms way. Being a broker has little risk; you have nothing vested other than your name. But in the end that is all you have. You are kidding yourself if you think you are building equity. The problem is that most bankers are brokers who only became brokers because Wall Street and correspondents appealed to their greed, and told them how much money they can make. They never said how much they were risking. Those brokers who convert to banking rarely investigate all the gory details and true risks involved. Mostly because most good broker principals are the best sales guy in the company and sales guys don't want to be bogged down in the details.

A strong back shop (the ability to measure and protect risk) and a strong secondary (the same thing) is what makes the difference in long term and short term success.  As the old phrase goes; "when the tide goes out you can see who is swimming naked".  If you don't have the stomach for the details, stay a broker, deal with lack of total control and keep your dreams realistic. You will build no equity but carry your cash home at night and sleep tight, as long as you don't have any fraud working for you. If you want to be a banker or work with bankers do the due diligence. The last 10 years due diligence meant you looked at their price sheet and commission table. If you liked it, you then looked at the marketing money and a pipeline buyout. You can still do that if you don't mind working the streets and moving bordellos every other year. But some of you may want to move to the other side of the street and go legit. Then do the real due diligence and see if the firm will be there long term, is in alignment with the right investors and is doing right by their customers.

Maybe they will even support you in being your own brand. A brand that stands for something....

Values Driven Business...

During my recent Jet Blue-marred vacation I had the pleasure to read values-driven business, by Ben Cohen and Mal Warwick. Mal Warwick is a consultant who ran an agency specializing in fund-raising for non-profit institutions and Ben Cohen was the "Ben" of Ben and Jerry's. I know what your thinking, "what did you find in common with these California/Vermont tree-huggers, you money-loving mortgage guy?" Well, as you can tell from my past blogs, I have been aching to see our industry return to, or maybe just discover, a true set of values that they can aspire and abide to.

Here are two critical aspects of the concept of values in a business approach from the book:

"The true purpose of business is to add value -- not just by transforming raw materials into goods or providing useful services but also by adding value to the lives of employees, adding value to the life of the community, and adding value for the sake of future generations by treading as lightly as possible on the planet. Adding value in the form of wealth from growing profits is part of the picture, too, but only a part."

"When people in business do their jobs in ways that are truly consistent with the fundamental human value of fairness, compassion, respect, and reverence for nature, the result is to relegate the profit motive to its proper place -- as one, but only one, consideration in guiding business decisions."

Now I know that the talk of "reverence for the planet" and "respect for nature" seem unrelated to mortgage banking; but the spirit of recycling at work, the power of scanning vs copying and FedExing, and encouraging and empowering your employees to volunteer for Rebuilding Together or like kind organizations has long term positive impact on your organization.

According to the book, "Values-driven business is based on Five fundamental premises:

--Employees work more productively and pay more attention to a company's profitability when they're working for something they believe in, are treated with respect, are well paid, and receive a share of the profits. They also tend to feel better if the owner or top managers aren't making out like bandits in comparison.

--Customers are more loyal and willing to forgive errors when a company's dedication to quality products and services is obvious and when they deal with highly motivated employees -- especially when employees are allowed to take the initiative to apologize and make things right.

--Consumers often show a strong preference to do business with companies that demonstrate a commitment to their community and to the environment -- and are sometimes disinclined to patronize those that don't. Values alignment between a company and its customers build loyalty. Customers are more forgiving of mistakes and less apt to buy from a competitor when its goods are on sale.

--Your business will be better prepared for the future and more likely to survive inevitable disruptions if you build strong relationships today with your employees, your customers, your vendors, and your community.

--You will live a less stressful and more fulfilling life if you look at your employees, customers, vendors, and the community as partners rather than adversaries."

I believe there needs to be greater transparency in the way we run our business. The games played in the past of hiding or misnaming fees, under disclosing true rate risk, along with management playing games with rates behind the sheet to their employees, has to stop. We need only smart people who are adults able to handle the truth and be advocates for their business and their clients simultaneously. When they discuss compensation above, I believe "well-paid" means good pay for good work; "sharing profits" means some bonus program that touches all long time employees with benefits if the business does well, but also demonstrates when it doesn't. Alignment through transparency and compensation is key to any long term success in this crazy volatile business.

I'd love to hear your thoughts whether I am naive or right on. Where do you stand?