Pivot from Panic to Strategy


2019 will be a pivotal year for the real estate and real estate finance world. 2018 was the first year of a multi-year period of drought and starvation. In the first year, you are just thinking of getting through that month or that quarter or that year. Your decisions are short-sighted; you just react with survival instincts. You price irrationally (margins were unsustainable), pay irrationally (you would pay $20 for a $5 producer who would then deliver $2.50 due to the market), or buy any magical elixir that will make production appear (every lead and marketing appeared in your voice and email promising solutions).
Now firms know there is no end in sight and a refi boom is not coming to save us like the past 30 years. (Now the good news is that once we all believe that sad reality, refi’s will appear and the tone sure has shifted on Wall Street from 3 moves in 2019 to none, BUT if I start looking for my after Christmas presents I won’t get any! So now back to my campfire story…) This is the year that shifts us from panic reactions to strategic planning. When you realize you can’t cut margins that deep without changing your expense model, you make drastic changes to your business. If you’ve already cut salaried bodies and nice-to-have line items you are down to the heart and brain of the business, your sales and sales support team (leaders and assistants). In a perfect non-regulated world, how do you pay for being the best combination of revenue and efficiency? You must realign your business using new fresh eyes to see the marriage of consumer desires, technology, and compensation realignment to match.
Before we just slugged it out against our known competition; so we didn’t make big changes, just one more move than the guy we were recruiting from. Over the past year, money has poured into the real estate sector for pure disruption purposes. (Before that, money came into to gobble up existing firms and achieved efficiencies by layoff and consolidation theory.) We scoff at these new entrants like the internet lenders of 15 years ago saying it will never work. This time they have raised tech money and the tech attitude that they can lose money for years and still win. They didn’t come from banking; they didn’t grow up with a fear of compliance or risk. That forward thinking attitude frees up creativity that can create models and processes that are game changers---especially when accepted by the GSEs and major banks.
So what can we tell our aging sales teams who every month lose another potential customer before they ever got to their best referral source? They will never know because the oxygen just slowly leaks out of the room for them and their realtor. They see transactions occurring and neither of the traditional participants participates. Sure there will be plenty of deals to live off, but they shrink every year if you don’t adapt how you compensate so you can compete on price. Of course, then there won’t be plenty of deals to go around so LOs have to shrink.
So what do we tell them?
1) Master technology and the personal touch that makes you –YOU. If done correctly technology can replicate the basics of a relationship so you can be aware and present for the key parts where you are needed in a relationship. Tech can keep the relationship connected and warm so the clients never wander.
2) Communicate and listen to the way the customer wants you to. Ask and listen and ask again. Communication needs to be given the way the customer wants to hear it but YOU have to come through loud and clear throughout the process that becomes a relationship. Texting and video have to play a role as do self-serve portals for the customer to engage on their own time. AI (artificial intelligence) will sneak in here and be a subtle game changer.
3) Identifying the Influencers from day one and elevating them to an inner circle level of communication and first class service will expand your business, some of you are nodding your head as if you do. I throw the challenge flag on that. Have someone you trust audit that experience and I’ll bet you find three ways to upgrade the depth of the relationship that will tap into deeper levels of referrals.
4) Thoughtful and strategic thinking of how to mine your network by probing and connecting to the point of discomfort will open big doors. The amount of data we have that will continue to grow and be interconnected for us. But we have to be time-blocking to sit-down and put on the 3D glasses that make the 3 degrees of separation that connect two people who want to know each other and both who want to refer you.
5) Lenders need to think of themselves as being paid to give advice, as should Realtors. People only want to pay for that which they use. Our job is to correctly assess what the customer’s needs are and price that advice that will solve their need. If we assess it incorrectly or can’t get them to see what they really need, we lose the customer. If we win them we get correctly paid for that which we earned. The numbers could vary greatly by the customer, instead of the fixed % one-size cost structure today. How we work inside our crazy regulated world to do that is our challenge, but it needs to happen soon. Because others from the outside world who are disrupting us don’t know a Dodd from a Frank. They just know that customers want choice and transparency, and our industry is not known for either.
All but the last point can be accomplished by anyone. It takes a strategy, a plan to implement and the discipline to block it and execute it. If you don’t pivot in this pivotal year, there is always Amazon coming into our biz! I hear they just raised their wage to $15/hr.

Bigger worry: Ignorant Piranha’s or Amazon?

The traditional loan officer is experiencing constant erosion of the potential pool of candidates for their service. The “Amazoning” of our business is the risk that others come into your field with no burdens of compliance or credit risk or more importantly historical based fears and concerns and “free overnight delivery” you into matching their model.

Some of these models purposely don’t make money because they want to own the customer or make money on other aspects of the customer (see Gary Keller and Keller Mortgage), others see an opportunity to eliminate the salesperson and put out a price that disrupts.

What these outsiders lack is the appreciation that these are not units or widgets, but loans on people’s homes that carry 30 years of responsibility. Even after being paid off the decisions you made to grant that loan are a contingent liability, seemingly forever. Have any of these outsiders been through a credit cycle and seen what can happen if values drop? Gary gets his 5-6% no matter the number sold for and walks away scot-free. It is not unusual for a lender to see loans 5-10-15 year’s old walk back in their door with a bill attached from a lawyer or a regulator. I guarantee you that the Kellers and Amazons have not factored ANY risk into their modeling as they want to run a no margin business to just control the borrower and sell them other things. Mortgages are not “free shipping” or “free eggs” to sell milk.

Also, these new entrants are joined by telemarketing firms who have been shut down from refi business (in some cases legally—see HUD IRRLS) and banks/credit unions eager to grow and be consolidated. They are pricing loans that used to be priced for risk like jumbo or government with confirming or fewer margins. Jumbo loans frequently are priced below conforming even though the bigger the loan the bigger the risk (whose values are more volatile, and whose margin of risk is higher?). When the market turns, these banks will already be gone swallowed by a greater fool who will choke on what they bought.

All the low down government lenders in centralized chop-shops who are treating these low down/low FICO loans like consumer loans, after years of churning low doc refis have no idea of manufacturing risk; they are just trying to survive to the next refi wave. And as wrong as all these players could be they can be right enough to wipe out a year or two of market share and take collateral damage out of legitimate players.

So what does the traditional originator do? The over-40 majority group I worry about because of their ingrained memory of better times and the pining for its return. Blaming the last 6 companies they have been at in the last 6 years for their issues. It takes a very humble yet confident person to look deeply into who they are, finds what drives them and what they truly excel at, and reinvent themselves and their business while still being their best unique self.   Discovering how to do the job more efficiently while giving more value to referral source and customer will be where compensation is rewarded. As we currently serve the market, we originators have priced ourselves high enough to attract competition from the outside that will disrupt originators, not the mortgage business.

There are two basic choices.

First, you take a low comp plan with a low cap and a screaming price and match it with a heavy consumer tech experience where they do most of the work. You control the customer and referral source to doing it your way and back it up with an audacious Service Level Guarantee, you have a good production partner who runs this system like a marine and you steal share from others but you work smarter not harder while doing high volume.

The second path is to be a Loan Whisperer. You have mastered ALL products in your area and are seen as a true expert. Your high touch concierge level service is seen as a privilege to receive and you make a fair premium for your service. People know you are .125-.25 above lowest but enough people find it worth it that you have a very loyal following on social media. It also may not pay the same but it will be good for business for the future.

Trying to be both is dead skunk; especially in the Dodd-Frank world of compensation. Right now we are there and the Loan Officers and their companies are feeling a deep pain.

Currently, we in sales are struggling mightily with having “done their job” by having won the hearts and minds of their normal number of buyers in the form of pre-quals but then they don’t find homes due to inventory. So we stop, wait, blame the market. But we have not instituted tighter systems to stay in constant touch with this earned pool of buyers. We have not realized that you need to work your database of potential sellers so you can create deals (do you really do annual reviews??). We fight the technology that would allow them to increase their production and hourly effort so that we can find valuable ways to introduce our personal relationship with their customer. What industry outside of artisans and craftsmen do it the same way their whole career and expect the same result?

Only an economic crisis could change the landscape and I don’t see that in the immediate future. Sure valuations are frothy and there is a demographic and cultural shift in home ownership, but there are still immigrants every day who enter this country who want to buy a home as their first goal. Some of the rationales has shifted, and the new tax code didn’t help, but there is still a desire that will just be more rational and realistic.

We have too many companies and too many loan officers with unrealistic expectations. As product and credit differentiation is more limited due to regulations, QM, ATR, etc, price, comp, and model are left as options. There will be a split between “self-service” and “full service” with increased pressure to steer towards “self” as technology and AI improves the customer experience. It will take many years and there will be pauses to fight a 3-month refi war but the general direction is towards lower cost which also means lower comp for all in the process and savings for the consumer on paper but the potential loss of an advocate in the process.

These self-service jobs will be salaried with a smaller bonus per loan. They will be good jobs just limited in their upside potential and non-entrepreneurial. They will be the prevalent roles in the “brand” jobs where the consumer came in for the brand name –realtor and builder owned, bank and credit union, internet/call center.

The Loan officer who wants to bring full service has to master all products fit for their area. They have to have mastered technology –use a complete mobile app, utilize online app, full cycle CRM, Mortgage Coach Presentational software, Social Media daily integration, and more. They have to be confident enough and aware enough to seize every opportunity to partner with all potential partner throughout the life cycle –listing agents, borrower social network, CPA, CFP, Seller, Attorney, Affinity, etc. Like exhausting energy by fracking and tapping oil sands, they can’t rely on strip mining for easy refinance deals. They have to drill down daily and be purposeful in all they do just to stay ahead of the rising tides against them. The key is you can still make the same money if you are more efficient per action and therefore make the same money by “doing more business” per hour.

Fortunately, it will take many years of evolution, but the trend is undeniable. It is ironic that in the real estate transaction the outside forces would come after our 1.5-3% when the realtors 5-6% is there to be had. But they aren’t safe either. The whole real estate transactions 10%+ is in play and we all need to be better and faster to embrace change and adapt or be squeezed out over time….

Groundhog Day - Short Term vs. Long Term

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!

Mo Steak and less Sizzle, Please!

There are not many days over the last years that we have seen potential borrowers get turned down because we thought they were being underserved by all the product options available today. Sure there are a lot less options then there were 10 years ago, but we are more comfortable that these current options meet their needs AND keep them in the house long term.

Since 2006 we have continued to offer all the Federal and State Programs that have stayed strong through thick and thin with no money, all gift/grant, and low money down programs. Fannie and Freddie have come in and out with their offerings as well. You can also add rehab/renovation products where you have those same terms and get cash based on future value to fix up the home. Most of these programs can handle credit from 580-640 or even ratios as high as 54.9%

After a prolonged hanMaxresdefaultgover from 2008, we now have the unforeseen comeback in home demand where we now have droves of buyers driving home prices past their crisis lows to unaffordable highs. Plus, we have owners who don’t want to sell due to trauma from the crisis, being priced out of any trade-up, or lack of inventory of attractive trade down options.

So into this dilemma we have a new group of lenders pushing the envelope by doing the no money down options and selling the sizzle to the brokers like an infomercial (maybe the next product will offer if you buy now you get your second one free!). It started with the Sapphire product which was a rehash of the old Nehemiah product, a national scam to create an unqualified grant product. FHA shut it down.

Now we have a Fannie/Freddie product for the 97% grant class that is either 2% or 3% gift. Each week another one comes out where they lower the FICO—started 740 now at 640---and the back end ratio was 41, now it’s to 50%. With the first products, the down payment came from premium price, but the GSEs stopped that quickly. Now the new offerings are just building it into the price of the product so you pay .5-.75 higher rate. The GSEs swear they don’t want that to happen but it is and I don’t know how they will prevent it. (Ironically most of the programs require substantial reserves that make them less attractive than existing government products.)

Is this what we really need our industry energies going to? Increasing the pool of bidders & driving the daily auction prices up. As we know max financing deals aren’t even winning many of these homes, because those with cash or no contingencies are chosen. These properties won’t appraise if a max financing bid wins an over price asking house! We are just creating discouraged pools of truly not-ready buyers. They can’t qualify for the many existing no-money down programs, or don’t have the family network to give them a 3% gift on FHA.

If they don’t have that kind of network and must “borrow” their down payment from their lender they are more likely to default because who will be there for them when the boiler goes or the roof leaks? Strong family units are behind our strongest first-time buyers and much of the minority housing growth today. They pool money to assist their close and extended family in driving AND maintaining home ownership.

We also need our attention focused on changing rules and regulations to build better communities that 55 and overs to want move to. We need to help create housing that is affordable and flexible. Old and young are looking for convenient, cozy and efficient—it’s in short supply and not affordable. By the way May Housing Starts are at 8 month low? Lack of labor? Restrictions?

We should also be pushing the agencies to be more flexible in the qualifying of the 55 and over crowd who are becoming less traditional in their incomes with varied gigs just like millennials. They are also cash rich and income poor (in GSE terms). They would sell and get a smaller mortgage on a smaller house but they are penalized for being conservative in their investments and transitioning in their careers. If we can solve for those markets we could unplug the listings jam we are in.

Bottom-line we have the tools to get first time buyers in today. Studies show time and again that potential buyers think they need 20% down to buy—maybe 10%. If we can just get the news out about the existing options for low down payment programs, we would bridge that gap and add more buyers to the pool.

So please stop this race to another valuation bubble summit and let’s solve for our real problems today—inventory and affordability. If rates and valuations continue to rise, giving borrowers a Texas Two-step down payment isn’t going to solve a thing.