Our industry is back at it again; the piranha tank we call mortgage banking just loss half the water and half the bait. There are less independents to buy and most big banks still have distaste for mortgages keeping them out as an acquirer. But those lenders with impatient venture capital or big ego driven CEOs are desiring to grow for growth sake to satisfy the size number that makes it easier to sell or meet their goal of being “#1” or “biggest”—which neither does anything for the street except make the top guy satisfied or make a big payday for the top few.
Pricing is crazy aggressive but not coming so much from the institution but from the LO or Branch. Pricing exception rules have been halted to give ammo to their starving troops in the field. Of course, you get it; it makes sense that when you are below capacity you lose 100% of the money on loans you don’t take so take any loan even at a “loss” to keep market share and money moving through the business.
Compensation for everyone is reminding me of the headlines we are seeing in the stock market—“Melt-up”. In the face of shrinking margins and record high production costs lenders are out bidding each other for talent for all positions. As the industry is falling over each other to eliminate steps, paper, and process and get the customer to do more of the work, processor comp is on the rise. As margins shrink by the day in the piranha tank LO comp is being bid up by the VC/Ego company. If one pays 125 the next guy says 150, if they say 150 they say 175 until the model crashes.
Does a sales force really understand what that company will do over time? They will just raise their base costs if they are net branch so there is no profit or just turn up the rates for standard LOs. They tell you what you want to hear to get you to move or maybe worse they were clueless and had no idea that what they offered you made them no money and they had to correct their bad decision later. The market is littered with people moving because they felt like they were lied to by their current ownership/management—promised the best rates at the highest comp with full support and not having three branches opened up around them with in the year for cannibalization.
Like most things if it sounds too good it probably is. Have a passion to understand the math of mortgage banking enough to call BS when you see it. How do you offer higher comp then revenue made or how do you expect full support of wide menu of products to be able to win every purchase deal –like bond, jumbo, portfolio or construction with resident experts to make you look good all with low to no net revenue. It’s all tradeoffs and you have to decide what is important but knowing how your business makes money to feed that engine is key.
As a sales person I never sold someone a loan that wasn’t right for them. I have always believed in the consultative approach where you probe and get to know what your customer truly needs then determine whether you can help them and professionally present them your case for your solution. I look at recruiting the same way. I would never want to take someone from a company they were happy at, fully supported by and fully valued. That was the kind of crap I was under pressure to do at Countrywide. I had the lowest turnover in the company at 20% and I was still sick to my stomach over it. To be at a company where we instead give out Rolexes for 10 years of service and have a 25 year club makes me happy. But everyday there are people in the industry who take the call because they are not personally confident; everyday they believe the competition is better than them and they apologize from the first sentence with a customer. The rest—most of the top producers in fact—take their competitive information from doing their own investigations into the facts of their foes in order to learn from the competition so they could win more battles by positioning themselves correctly. They don’t even take the calls because they are a distraction; they know their market worth and know any day they could get a handsome check to move but it doesn’t cover the loss in business in downtime and lost connections inside and outside the company. The longer you are at a company the good will you create that travels throughout leads to a wide and deep force of teammates all pulling for your success. When you are just another hired mercenary in a firm built on social media images of recently assembled rah-rah teams you’re just todays flavor. So they sell with confidence every day winning because they know themselves, their talent and loyalty of the team behind them and where it fits against their competition. They know what market share should be theirs and they fight to the death to win it; they don’t get discouraged by the deals they pass on because it’s not the share they are supposed to have due to comp or model.
Larry Fink the billionaire founder/CEO of Blackrock the biggest money manager in the world came out this week and scolded CEOs of public companies for building Short Term business models made for the next quarterly bonus and not for the long term health of the business—sound familiar.
As a fiduciary, BlackRock engages with companies to drive the sustainable, long-term growth that our clients need to meet their goals.
He also scolded them for using buybacks which is a short term way to pump up stock price that does nothing for the long term health of the firm. He wants to see companies investing in themselves and their people
BlackRock also engages to understand a company’s priorities for investing for long-term growth, such as research, technology and, critically, employee development and long-term financial well-being.
This philosophy is something we believe deeply in. if you keep building a better company by investing in technology and training you will give customer and the team member what they want—high quality experience that is always there for you. A home where you feel protected and secure for as long as you need it.
Here is a link to Larry’s letter. It’s a great read and it got some real headlines this time around because of his focus on greater purpose. But before you get too much hope for the world. read his letters from 2017 and 2016 and see that he has been pushing this mantra for a while:
I mean it IS Groundhog Day after all!