From the ground up: The story behind Michael Strauss and the rise of American Home MortgageEric C. PeckMichael Strauss,American Home Mortgage At the forefront Our nation's third president, Thomas Jefferson, once said, "I am a strong believer in luck, and I find the harder I work, the more I have of it." American Home Mortgage Investment Corp. chairman and CEO Michael Strauss's business philosophy can be directly correlated to this famous quote, as his company's dramatic rise and nationwide expansion forges onward. The story of American Home Mortgage Investment Corp. begins in a New York City apartment. Much like the infancy of most major start-up companies, American Home Mortgage is grounded in humble beginnings, deeply enriched by an entrepreneurial spirit. With the mind-set of a mortgage broker, Michael Strauss, armed with a BA in business administration from Washington University in St. Louis, began American Home Mortgage in 1987, in the living room of his Manhattan apartment--a company that now boasts a team of 1,700 sales professionals within the organization, 270-plus loan production offices, nationwide, and is poised to move into a new 180,000-sq. ft. complex in Melville, Long Island, N.Y. to accommodate its increased growth. In December of 2003, American Home acquired Apex Mortgage Capital Inc. and reorganized into a real estate investment trust (REIT) named American Home Mortgage Investment Corp. The day after gaining REIT status, American Home began trading on the New York Stock Exchange under the symbol "AHH." Under its current structure, American Home is focused on earning net interest income from self-originated, mortgage-backed securities, and through its taxable subsidiaries, on originating and servicing mortgage loans for institutional investors. "We became a public company in 1999 because we had an Internet dynamic that was exciting to shareholders and this allowed us to complete our initial public offering," said Strauss in an interview at the company's Melville headquarters. "Today, American Home is an interconnected portfolio of high-quality mortgage assets that will further diversify our earnings, improve our returns and lower our risk profile. The idea of holding mortgage loans, which became a reality with our conversion to REIT status, will help us to grow our company by entering this new line of business which compliments our existing origination and servicing businesses." Michael and other members of the company's senior management team recently returned from a nationwide investor road show, making presentations on behalf of American Home to analysts, fund managers and potential investors. The company raised approximately $360 million and sold more than 14 million shares when it closed the offering on March 3, 2004. At the start of the show, AHH was trading at approximately $21 per share and rose to the $26-$27 per share range. "I believe our story was well received during the road show," noted Strauss. "The idea of combining a strong origination franchise with a strong mortgage holding franchise had a definite appeal to the members of the investment community. It allows us to have this significant lending presence which we believe will serve mortgage brokers very well." Net earnings for the company in 2003 were $73.8 million, compared to 2002's totals of $39.5 million, representing an overall increase of 86.8 percent. Revenue for the year was $432.1 million, compared to $232.8 million in 2002, an increase of 85.6 percent. Earnings per diluted share for 2003 was $4.07 per share, compared to $2.65 per share for 2002, an increase of 53.6 percent. As a result of the recent equity offering, approximately 63 percent of the company's projected earnings in 2004 will come from its holdings of mortgage-backed securities, approximately 30 percent will come from mortgage originations and approximately seven percent will come from the company's servicing business. As the backbone of American Home's success, Strauss integrates a mortgage broker mentality into the company's mortgage banker operations. "American Home shares a trait with many mortgage brokers in that we try to find the right products for the consumer, first," explained Strauss. "We want to have many different product choices and give the right product to the consumer, a characteristic that gives brokers a big edge over bank lenders, for example." Looking to instill a sense of pride and autonomy into his employees, Michael is a firm believer in considering the input of all employees during his decision-making process. "We try to empower our people to do their job and then ask them to be responsible for the company's well-being," explained Strauss. "It's amazing to see the results when you give a wholesale branch manger a portion of the profits and show him how this activity might affect his revenue. Holding folks responsible for an overall goal, but letting them reach that goal in such a way that is right for their community, is an important key to our success." On the personal front, Michael is a dedicated husband and father to his two daughters, five-year-old Catherine and one-year-old Jane. In his spare time, he enjoys taking Catherine ice skating and spending the weekends with the family at their Manhattan home. The influence of family has also rubbed off into the business world for Michael, who attributes his hard work ethic and strong business acumen to his father who was a manufacturer's representative for stationery supplies. Artwork handed down from his father lines the walls of Michael's Melville, Long Island corporate office. "One of the nice things about having been in this industry for a long time is that the high pressure that I face today isn't quite the same as it was 10 years ago," commented Strauss. "When you are originating, you are always doing your job, and now, I get the opportunity to be with my family every weekend, and I get a chance to go out with them during the week ... although not as much as I would like." Michael places a strong emphasis on always striving for the next rung on the ladder and attaining that next goal. "Take risks ... take calculated risks and take the time to think through what's going to happen," said Strauss. And with that philosophy, American Home Mortgage and Michael Strauss have risen to prominence in mortgage industry market share, and has earned the distinction of placing number two on Fortune magazine's 2003 list of America's Fastest Growing Companies. "If someone is truly committed to their business, they should always be looking to take that next step," said Strauss. "If they're committed to the business and are not sure whether or not to invest in a training course or seminar, that's when they should go ahead and do it. I think that you get more of a benefit than what is immediately apparent for the different things you do to improve your franchise." Wholesaler Grows Up ... American Brokers Conduit explodes onto the wholesale arena Offering a competitive product line, American Home does not limit itself to a core group of products, but is constantly expanding its offerings in order to remain ahead of the ever-evolving and sometimes volatile mortgage market. The company has a product committee comprised of account executives, branch managers and upper management. This committee goes out into the market, identifies where the demand lies and tailors a product to meet that particular need. "We're not just a conforming lender, a jumbo lender or an alt-A lender; we're across the board ... a whole soup to nuts concept," said Donald Henig, executive vice president of wholesale, Internet and direct-to-consumer operations. Don brings years of experience as a mortgage broker to his role with American Home Mortgage, including terms as president of both the New York Association of Mortgage Brokers (1987-1988) and the National Association of Mortgage Brokers (1989-1990). In 1999, Don became the first mortgage broker to sit on the board of governors for the Mortgage Bankers Association, as a member of the MBA's board of governors. "When we come up with a product and put it out into the field, your AEs may say, 'Well, if you tweak the product this way, it may be even more effective,'" explained Henig. "The product is then brought up to our product committee and we evaluate it to make a quick decision. We get personal feedback from our AEs, since they are the ones who are out in the field, working with the brokers directly." At its core, the company is unwavering in its dedication to satisfaction of its AEs, some of whom were once mortgage brokers, all the way down the line to the mortgage broker and consumer. "One big plus is that many of our AEs are actually ex-brokers, so they bring a unique slant to our feedback," said Lisa Schrieber, chief administrative officer of American Brokers Conduit, American Home's wholesale division. "They can tell us what they sold as brokers and share those experiences with us. We love those types of people on our product committee." Lisa joined American Home Mortgage in March of 2002, having previously worked as the regional wholesale vice president for Arbor National, and later, as the southeast regional vice president for Bank of America Mortgage. Earlier in her career, she held positions at MGIC in northern New Jersey and worked with the wholesale division at Dominion Bankshares in northern Virginia. Lisa has served on the board of directors of the Maryland Association of Mortgage Brokers, is an active member of numerous broker associations and has been a featured speaker at various state events and trade shows. At the heart of American Home's operations is the company's continued dedication to its job: complete satisfaction across the board. And with that dedication comes the company's unique business model and the addition of the broker relationship manager (BRM). The BRM acts as a guardian over the entire loan process, managing the lines of communication, serving as a personal contact for the company's AEs--a refreshing and personalized take in today's world of automation. "The BRM is a way for us to fill the void that brokers complain about, that service level of communication that many wholesalers talk about but don't really deliver on," said Schrieber. "Many of our competitors today have gone to automation, which is fantastic, except that if they fall out of automation, there is no one to catch you." American Home's AEs each have approximately 30-50 active mortgage broker accounts and each BRM handles two account executives. As a fully functioning symbiotic unit, the BRM and/or AE are always available, troubleshooting issues that may arise in the loan process, while providing a personalized touch along the way. "If the broker needs something in a rush, who are they going to call?," said Henig. "The BRM has the power to push things through, as opposed to the broker dialing an 800 number, getting into voice-mail and looking for the underwriter who has your files. If your AE isn't available, then the BRM can be called and assist with any problems, maybe lock a loan or even get a loan cleared and closed." Schrieber added, "Even if the BRM doesn't have the answer immediately to a specific issue, they call the other party to inform them that they are looking into it and will get back to them with a follow-up. Service is a big thing for us, and even if the BRM doesn't have the answer readily available, they always answer the call and provide a service guarantee." In addition to American Home's AEs having a BRM guardian watching over them, AEs are trained and educated on a companywide "Product Call of the Week." BRMs and AEs log onto the weekly conference call to learn the parameters of the week's featured product, along with how to sell it and to whom the target audience should be. If the conference call is missed, it is recorded, archived and can be accessed at a later time or listened to repeatedly for clarification and deeper understanding. In addition to the "Product Call of the Week" and the strong BRM system, American Home's AEs benefit from its Automatic Marketing Portal, which includes economic updates and promotional sales tools designed to be passed along to the mortgage broker. A weekly e-mail is then sent out at a specified time by the AE which summarizes market trends and provides the broker with tips on topics ranging from how to run their business to new product summaries and critical economic data. The company is currently working on flyers and promotional materials that can be customized by the broker for use in marketing to real estate agents and consumers. Schrieber continued, "As a wholesaler, we provide the brokers with the tools necessary for a changing environment. American Home not only provide the products, but if there is a regulatory issue such as bundled services or fee packages, we will move in that direction in order to keep the broker in business." Instilling the broker mentality is an easy task when a healthy majority of the company's employees have a history as mortgage brokers. Taking that mind-set from upper management and conveying it companywide is also a task handled well by the American Home Mortgage crew. "This is not a bank mentality place," described Henig. "If anybody at American Home worked for a broker, they'd fit right in, because everyone here works themselves hard, all day long." "I'd have to say that I've never worked anywhere where I've seen people work so hard," added Schrieber. "I think the reason for that is because they all feel that they are part of the company's overall success. We're listening to solutions from the field, every day, from the people who contact the brokers."