Growing Branches

2010 seems to be the year of the retail branch platform. With additional industry fallout, tighter financial requirements and S.A.F.E Act licensing, many strong mortgage bankers are looking to grow.

I'm just thinking - since these ventures often have significant upfront costs, how are these bankers approaching this?
-Do they really know who they're bringing on, and what makes them tick?
-Are the assumptions and expectations realistic and in-line with operations?
-Are systems really in place to allow these new branches and financial models to thrive?
-What efforts are made to embrace the branches and make them feel part of corporate?
-What focus is given to loan officer retention?
-How independent are the branch managers?
-How are training and system integrations handled?

There's so much potential here, for both great success and failure.

AMC vs Appraisers, Lenders & Homeowners

The idea of an appraisal management company (AMC) is great. Bottom line, they provide a service and fill a void left by the HVCC regulations. Sales, or anyone tied to the sales process can no longer contact appraisers so AMCs appear to be the logical answer. They act as the layer, or buffer between sales personnel and appraisers.

We all know that direct contact between sales and appraisers can be dangerous. I know many appraisers who didn't exactly love hearing from loan officers all day, but I doubt this is the answer we all sought. The idea behind the business is great; unfortunately the business model often pits the AMC against the appraiser, lender, sales and homeowner.

Is this the best we can do? Here's an example:
Pre-AMC
Standard appraisals range from $300-375, collected by appraisal firm
Direct contact between sales/loan officers and appraisers

Post-AMC
Standard appraisals range from $400-450, collected by AMC
Appraisal firms collect $225 from AMC
All contact with appraiser/appraisal firm is filtered through AMC

Here's the flaw...
1. Homeowners/loan applicants are now charged a higher appraisal fee, approx 15-25%
2. Appraisers are paid a reduced fee from the AMC, approx 40-45%

Here's the result...
I'm seeing most accomplished, reputable appraisers livid - seemingly forced to accept these reduced fees. Their unfortunate response has been speed; churn out reports to make it up in volume. This leads to reports with errors and the quickest comps one can find, not the best. Common errors these days? A minus (-) adjustment instead of a plus (+), failing to note a garage adjustment although a two car garage is clearly evident in all photos, etc. You get the idea. These aren't malicious errors, just simply careless mistakes when trying to move too quickly.

Clients are charged an increased fee for inferior product. This is a bad model. When, or I should say if the errors/omissions are noticed, the lender must advise the AMC, who then advises the disgruntled appraiser of the error. Needless to say this isn't atop anyone's priority list. Turntimes stall, rates move, locks expire, all become frustrated.

Is this really the best we can do? Great idea, poor execution. There must be a better way.

S.A.F.E. Act - Are Your Ready?

While most Banking Departments in the past have required some form of loan originator licensing, it was haphazard and inconsistent across the board. The need to regulate loan officers and make them accountable for their own actions on a loan level basis was the crux of Title V of the Housing and Economic Recovery Act of 2008, also know as the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Mortgage Licensing Act of 2008). The act established national standards for mortgage licensing and training – both pre-licensing and continuing education.

Unless you fall into an “exemption”, all companies as well as originators must comply with the S.A.F.E Act and all its requirements before fast approaching deadlines. Most states have set licensing compliance deadlines of May 31, July 31, October 31 or December 31, 2010.

Banking Departments have hired teams of employees for the sole purpose of calling borrowers to verify who the loan originator was. With states running such large deficits, what easier way to levy fines and bring in some money. Do not let the deadlines pass you by.

WARNING: If you're licensed in numerous states and employ numerous originators, this can be a terribly expensive proposition. The time and costs of both training and the exams themselves will quickly multiply. I'm sure most cannot afford to overpay nor can they risk losing talented originators. Do you have a plan???

Importance of Reports

It's far from the glamorous side of the business but solid reporting is essential for all mortgage bankers. Reporting related to pull-though and conversions can, should, and needs to be broken down at every level with the appropriate variables. This should come as no surprise for mortgage bankers. Why do you think investors and warehouse lines offer such in-depth, detailed reports based on locks, volume, and time on the line? Why do you think the account reps treat these reports with such importance, if even just one item is outside of tolerance/norm?

Key Areas Of Reporting:
-Marketing
-Sales/Loan Officers
-Credits
-DU
-Appraisal Orders
-Submissions
-Closings
-Locks
-Sales
-Investors

Strong reporting will help bankers better manage their business. These reports will highlight flaws and issues, allowing management to strategize on how best to "plug the holes" and become more efficient. They can give insight into forecasting operational and production levels. Surprises or shocks to your system can be extremely dangerous in today's environment and strong reporting is a key component to avoid/limit this risk.

A lack of reporting is dangerous. Even worse may be convincing yourself of strong reporting, creating a false sense of security. Mortgage bankers MUST truly understand the details of their business in order to manage it effectively and efficiently.

It's all in the details...are you aware?

Updated FHA Net Worth Requirements

Since 1993 FHA required mortgagees to maintain a net worth of only 250k. Talk about a low barrier to entry. As mortgage banking becomes more difficult and foreclosures rise it seems like FHA has finally decided it was time for action. They've laid out some ideas and plans over the last six months but now we have some firm requirements.

Aside from eliminating "broker" (correspondent) approval and putting the onus on the "sponsors" (lenders) in the TPO space, the new net worth requirements for lenders is rising from 250k to 2.5M over the next three years. This will force many small to mid-sized mortgage bankers to change their focus.

No longer can a firm be content with the status quo. Now is the time to be tight, efficient, and focused. FHA is giving lenders a three year period to strengthen their financials. It's quite simple, 12 months to build a 1M net worth, and 36 months to build up to 2.5M (1M + 1% of originated volume). Additionally 20% of a lenders net worth is to be held in a cash or cash equivalent account.

Are you planning on raising some last minute capital? If your net worth is below these levels you better start planning now, putting this one off would be unwise. With some strategic and calculated planning, these requirements shouldn't be an issue for any mortgage banker. FHA is being kind enough offering a 12-36 month implementation period - use the time wisely.

Opportunity Risk

I want to introduce a new term to the mortgage dictionary, "opportunity risk." Somewhat similar to opportunity cost, "opportunity risk" is the risk of focusing on items that you cannot control while not paying enough attention to the items that you can control. This can be quite damaging to the overall health of a lender and at the very least hinder growth.

Many of us spend so much time making assumptions completely out of our control. Where are rates headed? How will it affect the pipeline? Is the client closing? If so, when? We have all been at this long enough to know that many deals will fall out without good reason. It's out of our control.

Policies and procedures are well within your control. Through reporting, you can identify tendencies of your sales force. They are creatures of habit and once you identify them, you can use these habits to your advantage. How often does a loan officer request 45 day locks but look for pricing concessions? How often do they lock for 15 days and request free extensions? Certain rules and processes will result in a more efficient locked pipeline. The point here is that the more you truly understand your pipeline, you can take control and limit opportunity risk.

Opportunity risk is often concealed by profits. Are you happy with a good day? If you are like most, you are happy with receiving a daily trade report that is in the black. We all like to see gains, but is it enough? Are you digging deeper? On good days, you need to look into what you could have done to make it a great day. I guarantee that on your best day there are loans that could have closed and increased your profit but were not addressed because you were already doing well for the day/month. There is always more to be done and remember you control much more than you realize.

Being efficient, maximizing your gains, managing your cash flow, establishing a reserve strategy; it's all under your control. Make sure you're focus on the right aspects of the business. It's easy to get caught up with what's not in our control and then make up excuses of why you can't do this or that. Opportunity risk is dangerous.

If you hedge your pipeline this risk is even more magnified. Some of my worst days were when I knew I could maximize profits for the following month but did not set up a big enough reserve from the previous month to take advantage. There's nothing worse than having to pull back on volume, knowing the market was working in your favor, because you did not have the cash to fund the next 30-60 days. Knowing that you could have set up a record month but were held back due to a lack of planning and effective control is a tough pill to swallow.

Are you really focusing on items/issues under your control?
Do you make excuses for failing to hit goals?
How much "opportunity risk" are you taking?
Do you need help focusing on the appropriate issues?

Where oh where have all the good websites gone?

As I scour prospect websites I notice a very unfortunate trend. Very few mortgage companies have put a lot of thought into their websites. Many have almost no distinguishable traits, they are very confusing and hard to follow and quite a few companies actually have almost identical sites.
(most certainly used the same developers for an inexpensive rate) Bad idea!

I suspect it is due to a comfort level with the space. Most successful mortgage company owners were brought up in a very manual-hand written world. They also did a lot of face to face selling which didnt lean on a web presence to help legitimize the sale. It just wasnt needed at the time. They never had to use the website to help close the sale....Now they most certainly do!

Nowadays most people at some point during the sales process are going to go to your website (your window to the world) to check out what you are all about. It is imperative that that visit ends with them wanting to come back, not run away.

Some tips:
1) People want to work with companies they can trust- Be sure to have an about us section with some real tangible information about you as a company. Dont go generic here! It is about you, not about a theoretical mortgage banking entity..Be original!

2) Make sure it is easy on the eyes and not too cluttered. It needs to have enough content to bite into, but not a full meal. It should leave a prospect feeling more informed, yet wanting to get more questions answered by the sales person. Then it is up to them to convert. The website needs to help facitilate the sale...it should NEVER inhibit.

3) Make sure there are clear calls to action. You want them to stay with you and convert eventually into a sale. So you need to have many ways to get in touch with you
> Easy to use web applicaiton
> Some sort of "we'll contact you" form
> 800 Number displayed prominently on all pages
> A way to email you with questions
> A chat function

Parting advice:
Some sites I have visited have left me very confused and frustrated...I am certain this is definitely not the desired result. The good news is that it is an easy and relatively inexpensive fix...Give your site a face lift and reap the benefits of more closed loans!

10-Year Treasury Yield

The 10-year treasury yield broke the 4% benchmark this morning. We haven't seen yields this high since Q4 2008 when the economy was in really bad shape. Although rates have increased over the last two weeks, the good news is that mortgage spreads are much tighter than they were in '08 and rates are still relatively low.

With the Fed ending it's MBS purchases last week, how long will spreads remain so tight? We're not sure, but we don't think the government will sit back and allow mortgage rates to rise too quickly. Combined with the expiration of the home buyer tax credit, this will create concerns in Washington.

The housing market is the core of the economic recovery. As we enter the prime real estate months (Spring-Summer), will the Fed and policy makers gamble and possibly allow yields and spreads to jump while the tax credit expires? We think not but one thing is clear - government intervention is finished for now.

How closely are you monitoring and managing your pipeline? High volatility leads to high levels of risk and exposure, especially when the market breaks through a benchmark.

Mortgage Originating---Keep "trying"!!!

"There's no such thing as a failure for who keeps trying, coasting at the bottom is the only disgrace," Blue's Traveler.

I love this quote, it is dead on! So many people just coast though life. They take the easy route. They become complacent. You should always be looking for more, to be better etc... Challenge in life is good. You should meet it head on. If you don't succeed at something right away, keep at it. It will come if you want it badly enough.


I have a tremendous amount of respect for a non-producer that is asking for help, and truly wants to turn it around. I have far less respect for those who are in a comfort zone, and are not striving for more. We have one go at this life, and it is up to each of us to make the most of it. Ask yourself are you living up to your potential? Are you challenging yourself to get to the next plateau?


Good salespeople are ambitious and have a burning desire to produce results. Otherwise they would take on safer, lower risk/lower reward jobs. Yes the market has turned a bit and some say it has gotten much harder. Others are changing with the times and adjusting their approach to adopt new, highly effective strategies. If you want to make it happen in 2010 you have to work for it.

What will you do today to be better than you were yesterday? Don't go home until you figure it out....

Success: Do You Stand In Your Own Way?

Anyone working in the mortgage banking industry over the last decade has undoubtedly gone through a number of ups and downs. We've made plenty of mistakes, and looking back we all would've acted differently. It hasn't been easy and nobody is perfect. To go through so many challenges and continue in the industry, we've all adapted. We've honed new skills, widened (or tightened) our scope of services, increased our number of origination sources etc. As we all continue to adapt, we often do so with help from others, whether it be from co-workers (past or present), clients, third party vendors, investors, or consultants.


While many of us have looked to make some sort of transformation or improvement over the years, our approach is often a bit odd. Most people like to think they've figured it out, or at least pretend to have figured it out, and this stands in the way of improvement. It's almost human nature to be uncomfortable admitting flaws or a lack of knowledge. Many children are afraid to raise their hand to ask a question in class. Many adults fib to their doctor or dentist on how they're feeling. As I mentioned above, nobody is perfect and nobody knows everything. Unfortunately we like to pretend otherwise. We want and need help, but we're afraid to truly open up and admit it.

Ok, so back to successfully adapting in the mortgage banking industry today. When looking for help, it's imperative to be upfront and honest. You'll only stand in your own way if you pretend to understand certain processes which deep inside you know you don't. You will delay the necessary progress and changes if you hide your faults or hesitate to ask questions.

Our success often relies on the help from others.
Do not pretend to be perfect.
Do not hide faults or flaws.
Do not stand in your own way.

Mortgage Originations = Children's Game of Telephone...Technology is Key to Winning

I remember playing the game of telephone as a child. We’ve all played it. One person starts a story or makes a comment. They then whisper the story to another friend, who whispers it to another, and so on. After relaying the message through multiple people, the final person in the game reveals the message they were given. Without fail, every game had the same result. The original message had been changed after it passed from person to person.

I realized that originating a mortgage is very much like a game of telephone. The game begins with the initial contact with a client and ends with the sale of the loan to secondary market investors or a securitization. A mortgage banker's process flow and technology systems sets the game for how many players or filters are involved. Information is often passed along from system to system. A phone call leads to pulling credit and starting a loan application. Then comes disclosures, an appraisal, title orders, DU, pricing engines, quality control, processing, underwriting, closing, funding, post closing etc.

I've worked for mortgage bankers in various roles and departments. Too often the story, or loan application changes as it moves along in the process. There are so many people working on every particular file and updates to the file are constant. This is where technology can either a friend or an enemy.


Mortgage banks which run multiple technology systems which are not interconnected or in sync are asking for trouble, or looking to lose their game of telephone. This simply leads to inefficiencies and problems for a lender - both of which result in increased costs.

-A mix-up on a rate lock which frustrates the salesperson
-An unexpected update requiring the loan to be re-underwritten
-A purchase advice coming in less than expected
-A loan kicked from investors due to a guideline overlay
-A buyback or kick because the final DU does not precisely match the final loan documents
-A buyback or kick due to a RESPA or disclosure issue
-A fine or buyback due to new SAFE Act licensing requirements

An integrated, centralized system ensures that as a loan changes, other systems are made aware. Certain systems will not just auto-update but can produce alerts for key players in the process, notifying them which data is updated. The message cannot be changed or lost as the loan moves along in the origination process. Required updates are made quickly and efficiently, limiting any surprises which ultimately lead to additional costs. We call this data integrity.

How many lenders out there realize they're playing a big game of telephone, countless times a day, with money at stake? Technology will either help you win or help you lose, but the first step to winning is to realize you're playing the game.

Mortgage Blues?

Our recent endeavours have shown us that there is definitely a case of the "mortgage blues" going on right now in the business. A lot of companies are feeling badly about themselves and their position in the market. There is clearly not enough offense going on, as managers are trapped in closed door, conference room meetings playing defense. This is a recipe for disaster!

Now more than ever before mortgage bankers need to change their perspective and change their game strategy. It is imperative to have all hands on deck, focused on one goal. If unified there is nothing that can't be accomplished. If divided, however bad things are sure to happen.

Improvement is a must...and it wont happen without the full focus and effort of the manaagement staff. It is incredibly liberating to take control of your own destiny. Yes it is hard to accomplish in a business going through so much change, but those who do will have very bright futures...

Spring is here and the blues should be gone with winter. Sometimes it just starts with a statement...I refuse to lose, and I WILL GET BETTER....