Each month, National Mortgage Professional Magazine will focus on one of the industry’s top players in our “Mortgage Professional of the Month” feature. This month, we had a chance to chat with Dave Zitting, president and chief executive officer of Primary Residential Mortgage Inc. (PRMI). Dave was one of PRMI’s founding partners in 1998, and in his role as company CEO, is responsible for determining and executing PRMI’s strategic direction, and the development of partnerships within the mortgage industry. Often described as optimistic, persuasive and innovative, Dave enjoyed a decade-long career as a loan originator before establishing PRMI. He has used his experience as an originator and his knowledge of the market to help PRMI become one of the most respected institutions in the country. Dave currently resides in Salt Lake City, Utah with his wife and two children.
How did you get started in the mortgage business?
I started in 1988 as a loan processor. It was an after school job for about six months, and I really began to enjoy it. I liked the office environment, and was learning a great deal about finance and business. The wonderful thing about the mortgage industry is that you get to touch so many different aspects of business and economics. After processing for a few years, I became a loan officer at the age of 18, and had a great origination career for about a decade.
What are some of the methods you used to generate business in your 10 years as a loan officer?
I was basically beating the streets. I remember my very first day as a loan officer, I was making flyers, getting out there and meeting real estate agents. Back in the early 90s when Federal Housing Administration (FHA) loans were gaining popularity for purchase transactions, I invented an FHA cheat sheet for my area that you could put in your day planner where you could take the rate and sales price and quickly find a quick downpayment. That became a great tool for me early on.
Early in my career, I also bought sales tapes from Greg Frost and Todd Duncan and followed their rules of engagement. I had a tremendous amount of success with these tools. I made sure that, each day, I had a minimum number of new people I met and shared face time with them. For me, it was a seven-day-a-week job, and I really put the effort and time in, and was able to grab some important accounts in the Salt Lake Valley area.
It was a really great time in my career, and I helped thousands of people finance loans in my area. I established great ties with area builders and it was satisfying to drive through a subdivision that, just 18 months prior was just a field, and know that I played a major role in establishing those new properties.
Would you say that today’s mortgage professional is facing a completely different marketplace than in the past or are there similarities to what you were doing back then?
I find it extremely interesting that now, in this new era of mortgage banking, originators are facing almost identical challenges that I was facing back then. There are a lot of originators who got in the business during the time I got out of the origination side and started PRMI.
Loan originators who entered the industry after 1998 and focused on slim doc and no-doc loan products are finding that additional training and a new discipline are required to successfully compete in the new revisited “full doc” environment that we are now experiencing. The bottom line is that it takes considerably more work to identify pertinent credit information and gather support documentation to satisfy an investor community that is smarting from losses attributable to the “easy qualifier” mentality of the last decade.
Is there anything that you base your work ethic and business philosophy on?
In building PRMI, I went straight out of the origination field to building a mortgage bank. I always had the “Four C’s of Finance” in my head: Credit, Collateral, Capacity and Character.
I often compare the loan process to an airplane. Before a plane can fly, it needs all its parts: An engine, a fuselage, a propeller, etc. If one of those elements were missing, it wouldn’t fly. I think the industry grew away from that idea, and was “defying gravity” in order to make these loans fly. The industry must come to the realization that, before you can make that loan fly, it needs all its parts. You can have a transaction that can have one stronger “C” than another. You could have bigger wings and a small motor and it will still fly, but you need some sort of balance.
Balance is something that PRMI always subscribed to. We made sure that the transactions always made sense. For many years, we were very stringent in our loan reviews, and that reputation, a reputation that was viewed as a negative thing just a few years ago, now has turned into an extremely positive thing. Now we hear people say that PRMI has a good structure that has insured our success going forward. We didn’t have a crystal ball that saw into the future … we had the fundamental ideal that each transaction carried risk and we wanted to do everything possible to mitigate that risk. We had to provide proper underwriting to the best of our ability using the Four C’s of Finance and proper quality control. We applied those techniques when a lot of people weren’t. We didn’t grow as fast and could have been 10 times the size we are now, and those restrictions capped our growth to a degree, but we were comfortable. We knew PRMI’s growth was organic and true.
You opened the doors of PRMI during a liquidity crisis in 1998, operating out of 2,500-sq. ft. of office space and still managed to close 321 loans in your first year of business. Do you think the lessons learned that first year set the tone for PRMI’s future growth?
Yes, I think that’s right on the money. Back in 1998, like now, there was major interest rate volatility. I was training for my Direct Endorsement Underwriting and coming out of an origination career focused primarily on A-paper and government loans. Coming out of that A-paper-rich environment—having to closely dot the I’s and cross the T’s over the years—gave us a clear direction and focus on where we wanted to go. There was a thought that we dove right in, stuck with it and it turned out to be very good for us.
If rates stay in this range and even bump up slightly, we are projecting $4.7 to $5 billion in originations in 2009. If we see a tick down in rates, which is a possibility, we could more than double this year.
Why do you think that 60 percent of PRMI’s branch sales are purchase loans and nearly 40 percent of the sales are refis? Why should a broker do business with PRMI?
One of the biggest reasons is the type of mortgage professional we attract at PRMI. They are professionals who are seasoned and have a good, steady book of business over a long period of time … not just during refi windows. We look to professionals who specialize in their market area. When you find a mortgage professional who specializes in their zone, their market only affords so many overall transactions and they will not survive in their market area purely on refis. These people work diligently to not only take care of refis in their own book of business and handle new business coming in, but they are always hitting the street, servicing the real estate agent, builder, certified public accountant (CPA) and their own sphere of influence.
The type of mortgage originator we attract at PRMI is one of a specific personality, mindset and business plan. I think that, in this major industry disruption that we’ve seen, PRMI has had an opportunity over the past year to find more of those folks than we’ve ever had in the past. We have been a very good choice for mortgage professionals who depend on transparency and a system that allows them to have control over their service levels. We can go out and find very professional originators who demand the tools they need to compete and own their market and the Metropolitan Statistical Area (MSA) that they’re in. If we can provide these tools to them to own that MSA, the by-product is a very healthy percentage of purchase activity.
I think we are also seeing a flight to quality in the retail mortgage banking marketplace. Sharp mortgage professionals realize the game is changing and their “cheese” is being moved. They are looking for a solid performer in the industry with whom to associate with. We are seeing the number of people inquiring about our business model ratcheting up exponentially. The pendulum is swinging and the smart people out there who are top producers realize they must associate themselves with a well-capitalized company that can fund on time. So many out there are spending more time on underwriting and getting the loan to the closing table, than they did acquiring the loan, taking the application and getting it to the stage of it being reviewed by an underwriter.
PRMI’s business model is unique as it answers all of these issues out there. It answers the throughput issue, as well as the financial stability issue. The table is set with PRMI and the word getting out is that people are understanding and interested in us.
Pricing is now the third thing I am asked about when people are inquiring on whether to do business with us. The first question I am asked is usually about our quality: “How deep is your bench and how financially stable are you?” The second question is usually a service-related inquiry involving underwriting, and the third question I am asked often involves pricing.
At PRMI, we’ve kept a great reputation in the industry, not only to retail mortgage companies, but also as an enterprise in the mortgage banking arena. We’ve been solid over the years and that strong reputation bleeds all the way around the industry, not only to the origination community, but the ancillary community and the secondary market. When these strong originators are out there asking and talking about what company to be with, our name pops up in a positive manner from all over the industry. We’ve worked very hard for that reputation.
We have the physical space to grow; we have the financial strength to grow; and we have the relationships with the banks and the secondary markets to grow. I think that our reputation, as people are looking to go to quality, makes us a very good choice.
Explain PRMI’s warehouse capacity and is there anything specific about your company’s capacity that differentiates it from the competition?
I can tell you that my board of directors will not think I have done my job if I am not at a $1 billion per month by this time next year … and that, by no means, is the cap. We are funding $375 to $420 million per month. We have the ability financially, with our banks, to more than double our current production without ever having to go to the table again.
What are PRMI’s goals for a paperless environment?
We were one of the first companies that adopted a paperless environment very early on, and over the last five years, have thoroughly explored this environment. To date, we have fully paperless capabilities. We conduct business, from the point of underwriting all the way through the secondary market, in a fully paperless manner and are able to empower any of our retail locations, branches or divisions with paperless capabilities. We are very glad we adopted a paperless environment long ago, as it is a big part of our productivity and it keeps cost structures in line. There are challenges with it, as the rest of the industry has been slow to adopt the paperless philosophy across the board.
Beyond just paperless mortgage banking, there is also electronic connectivity that we were very early adopters of, with FHA, warehouse banks and different ancillary resources. PRMI has always been an early adopter of technology and being able to consolidate workloads to either automated systems, predictable systems or paperless systems, we see an increase in efficiency, productivity and accuracy in the mortgage process.
When you walk into our Salt Lake City headquarters, you won’t see any paper files lying around the building. Everyone has two or three computer screens on their desk and that’s how we do business.
Do you see any major shifts in the mortgage market or is there anything on the horizon that mortgage professionals need to be aware of?
I see massive consolidation in the industry. There is still a lot of small mortgage companies that think we may have seen the worst of the consolidation. I think that there is more forced consolidation ahead and what that will do is basically weed out for a period of time, certain competitive forces. I think that companies need to stay sharp and be in strong financial positions and have the capability to grow. Companies that don’t have a strong growth plan over the course of the next two to three years are going to have challenges. I think its going to come in the form of liquidity, warehousing and secondary market offerings, whereas the industry overall will have an expectation of more business funneling in from less channels. Being one of those channels is the goal and if you are one of the companies that is still drawing and have the capability of being a channel, then the opportunities will be made available to those companies in pricing structure, adoption of products, although it’ll be a while until we see anything out side of vanilla products.
The broker community has some real challenges ahead as early as 2010 and 2011. Some of the new requirements in disclosures, yield spread premiums, consolidation issues and wholesale concerns will continue to plague the brokerage community. I think you’ll see a great number of brokers who migrate and connect and consolidate into larger organizations that will help them compete in all of those areas.
I think that there is going to be loan officers over the course of the next two to four years who are going to have a couple of different business cards with different logos on them. Because of this consolidation, there are going to be fewer choices as to where a professional originator sits down at the desk. Undoubtedly, all of these things are arguably going to make it more difficult for the consumer. With less competition, the consumer ultimately pays the price. That’s a systemic issue. We, as a nation, may be overshooting a bit in some areas, but that’s been a norm for this county and various industries and I think that to try to survive in the future, it’s a matter of having the right connections and resources, and companies that are well capitalized with amazing quality control. You need to be one of those companies chosen to be a part of the future.
Over a year ago, you partnered with Greg Frost. Can you detail some aspects of this partnership with a longtime top producer like Greg Frost?
The facts speak for themselves … what Greg Frost does works and is working for PRMI … not only because of the positive feedback I’ve received from our managers and partners from his sales calls and office visits for seminars, but I just look at his numbers. He has been with us for just 14 months, and he is our number one shop in the country. We’ve been around for 11-years-plus, and Greg comes in and becomes our number one shop. To do that is no small task.
The success that Greg has helped me achieve as an originator was so serendipitous for us when our industry rapidly went back into what mortgage banking always has been, and frankly should be, to take those tools and be able to provide one of my mentors a home and to have Greg become our vice president of sales training. To have Greg Frost among our ranks proves that strength in this market by being our number one shop in 14 months, I tell you that is a pretty nice notch on my CEO belt. That was a great decision to bring Greg aboard. I am very fortunate to be such a good friend with Greg Frost and am very happy that he joined our organization.
Any closing comments on PRMI and the future of the company?
I think PRMI is a unique mousetrap. It was built by a mortgage producer for mortgage producers with a heavy understanding and appreciation for the financial approach to the business that is going to be critical to maintaining the bank relationships that we’ll need as loans grow.
Brokers will want a strong financial company that can implement strategy and systems to ensure the viability of the mortgage product. They did business with a lot of people who had poor practices in place, and when it came time to stand up and be counted, they couldn’t write the check. They are being cautious going forward.
Net worth is critical. Companies with strong net worth will get you in the door and seated at the table to talk, but the investors today, the ones making the decision to buy loans from companies, are going to be coming in a looking at your quality control plan, your systems, your past performance history, loan performance and what happens if a loan stops performing. The quality of production is critical. The banks have a concern, once they open the door, about your net worth. Once you are in, they are more concerned about practices and procedures. They have a very low risk appetite, they are looking for companies that they feel comfortable with and have very best business practices, longevity, performance and the capability to actually originate a lot of quality business. The guys with the gold want to give the resources and capabilities to those who control more market share, the right way and with less risk. Those will be the winners going forward.
These big banks are non-regulated bankers, you have to trust their best practices, you have to know that when they are originating a loan, it becomes a collateral-worthy transaction that will perform exactly like everyone thinks it will perform. They are looking for companies that will provide them that product. There is a risk-reward balance for them. The reward is stronger if you control more market share as a non-regulated bank. Controlling more market share and being able to funnel that into more conduits in the secondary market … that is the reward. If there is lower risk and higher reward, that is the recipe for who gets to win in the future.
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