There is an interesting correlation between the coming changes in loan originator compensation (April 1, 2011) and leadership. While I will get into a more in-depth explanation later, I am predicting that the success or failure of any future loan officer compensation plan will be more about “leadership” than “the comp plan.” Leadership is going to be huge! Sound interesting? Last month, I wrote about how we, as a nation and, for that matter, as an industry, are facing a serious leadership crisis. Some of you questioned me when I suggested that extended periods of prosperity do not foster leadership development, but actually seem to cause leadership development to go into remission. If you are still wondering about that statement, then ask yourself the following questions: “During my (your) life, when was it that I (you) grew the most personally? Was it during the good times or during the more difficult times?” While we all enjoy the good times, we undoubtedly experience the most meaningful times of growth and maturity during the difficult times. Is there any question about this … the good old days in the mortgage industry are gone, and we may in fact find ourselves facing some very difficult days ahead. This is especially true when you consider the tsunami of new regulation headed our way, combined with loan volumes plummeting by as much as 50 percent. However, if we subscribe to the theory that good times cause a remission of leadership and bad times provide a window of opportunity for good leaders to rise, then it is fair to draw the conclusion that because of the difficulties we foresee, are we going to see some strong new leaders emerge? It is in times of economic and social upheaval that we see significant shifts in power and wealth. Old leaders fall and new leaders rise along with the companies that they represent. Nowhere could this be more evident than in the mortgage industry. We can quickly identify those industry leaders of yesterday … the chief executive officers of companies such as Countrywide, Washington Mutual, IndyMac and a slew of others, all of which have vanished from the landscape. The only reason we know that some of them are still alive is that we read about the many lawsuits in which they are still embroiled. What we cannot yet identify are those companies that are going to emerge to take their place. However, we can identify what the characteristics of future leaders are. These are the seven characteristics, or the “7 Cs”, of what I believe we will see in the strong leaders of tomorrow. I. Character Character has always mattered, but more so in the future than ever before. Character should have always been synonymous with leadership, but regrettably, that has not always been the case … especially in the recent past. In the last business cycle, greed seemed to trump good character. However, the top leaders of tomorrow will emerge and become evident because of their strong character. While they will not be perfect, they will have a strong sense of what is right and what is wrong, and will insist on doing what is right. Character will be their hallmark. A return to “virtue” will be the objective and not viewed as some outdated concept. II. Conviction A strong leader has to believe deeply in their mission and this belief has to come from their heart. That is why when following a leader, you have to know their character. If you follow someone with deep convictions anchored in a compromised character, the mission has a much higher probability of failure. Real leaders genuinely believe what they believe and do so from the core of their being. That is why conviction has to be anchored in good character, especially when facing the challenges we have ahead. III. Confidence Because of the difficulties that lie ahead, a strong future leader is one who portrays a heartfelt confidence that is “birthed” from a deep conviction in sound principles versus power. We can spot arrogance from a mile away and people of the right character will not follow the arrogantly overconfident counterfeits of yesterday. IV. Charismatic Future leaders will have a genuine warmth about them and are not the “full-of-themselves” charismatic types of the past. They will be “real” as the expression goes. Another word that I would use to describe them is “relatable” and magnetic. V. Clear and concise A good leader eliminates confusion, and communicates in such a way as to bring clarity to otherwise confusing matters. Loan officer compensation is an example of this as there is so much confusion surrounding the coming changes. A strong leader intensely studies whatever issue they are facing and forms a clear plan understandable by all, and then will be able to relay that plan very concisely. VI. Conversant in the facts Again LO compensation changes are the confusing issue of the day as there are so many factors involved in making good decisions about which plan to pursue. A good leader will have a strong grasp of all the facts by delving into the details and then effectively communicating their knowledge in a way that most can understand. VII. Compassionate The leaders of tomorrow are going to have to be more compassionate in nature than the hard “it’s my way or the highway" stance leaders of yesterday. With so many going through hard times, it is essential that the leaders of tomorrow be genuinely compassionate towards those who are struggling without getting caught up in the difficulties of those who follow them. This is a fine line that true leaders seem to innately know within themselves. It is my intention to write every month in this column about each of the above listed characteristics of good leaders. I am excited to be doing so and look forward to your feedback. Now that I have laid the foundation for what I believe the characteristics of tomorrow's leaders should be, where are we going to find them? Leaders not only deal with difficulties head-on, they, in fact, attack them vigorously. So if you want to start looking for future leaders, go the most intense issue(s) of the day and there you will find them intently/intensely focusing on solutions. So, what are the two most intense issues immediately before us? Are they not the following? ►Issue #1: The Federal Reserve’s “New Rule” issued on Aug. 16, 2010 This new rule amends Regulation Z’s implementation of the Truth-in-Lending Act (TILA) and the Homeownership and Equity Protection Act (HOPEA). This new rule effectively prohibits: (1) Compensation to loan originators based on terms or conditions of loan, including rate or pre-payment penalty, but excluding the amount of credit extended; and (2) Steering by mortgage brokers and other "loan originators." It defines the permissible and impermissible methods of compensating loan originators. The wording in the new rule is filled with ambiguity, and therefore, fraught with legal exposure risk. But there is an opportunity in it for strong leaders … more on that in a minute! ►Issue #2: The new Dodd-Frank Act, also known as the “Wall Street Reform and Consumer Protection Act” or the "Financial Stability Act of 2010" If we thought the new (Federal Reserve) rule above is confusing and filled with ambiguity, wait until you start reading through the massive Dodd-Frank Bill. The worst part calls for the formation of yet another new regulator … the Consumer Financial Protection Bureau (CFPB). When the CFPB comes into existence on July 21, 2011 it will have extraordinary power to further regulate the mortgage industry including it’s jurisdiction over loan originator compensation. In the LinkedIn discussion group “Loan Originator Compensation Changes and New Rules” that I started less than 30 days ago, there are hundreds of posts on these critical issues. Note that if you have yet become a member of this group, follow the instructions in the sidebar entitled “Instructions on how to join the LinkedIn discussion group on “LO Compensation.” You see, the leaders of tomorrow are already using the new tools of tomorrow that are available to them today. Future leaders have a tendency to be early adopters of newer technologies and seem to find some way to use it more effectively than those “wannabe” leaders that just don’t seem to “get it.” What are the “New tools of tomorrow?” What comes to mind? If you answered "social media,” you got the answer right. In the last five years, there has not been a more significant development than this which impacts the way we do business in the future than social media sites and applications. The leaders of tomorrow are already using social media very effectively to communicate their message and draw like-minded people to them. With more than 1,500 members as part of this discussion group, it is a great place to go and read the various LO compensation ideas presented and hashed out. As you read the many posts, keep the “7-Cs” I discussion from above in the back of your mind and see if you are able to recognize those who are showing signs of leadership. Leaders see the above two issues as a great opportunity to grow their business. They recognize that the potential disruption caused by these two issues are creating opportunities to grow their business. While these are not the only issues that will be causing significant disruption within the mortgage industry, they are the two issues that are on everyone's mind today. The leaders of tomorrow are seizing what they recognize as an opportunity to draw top performers into their company. They will be successful if they can communicate with conviction, in confidence and in a clear and concise manner a finely crafted “better solution.” Their companies will prosper if they possess each of the “7-Cs” previously listed. Personally, I have never seen an opportunity as large as this one. There is going to be a huge potential seismic shift of top production personnel. We have already begun to see a mass exodus out of large behemoth regulated financial institutions that have the false perception that they are the leaders of tomorrow by virtue of their size current market share. Once again, where the exiting masses go is yet less clear, but one thing is certain … they will end up working for the companies that have the strongest leadership and right character. As always, I welcome your feedback on this article. David Lykken is president of mortgage strategies and managing partner with Mortgage Banking Solutions. He has more than 35 years of industry experience and has garnered a national reputation, and has become a frequent guest on FOX Business News with Neil Cavuto, Stuart Varney, Liz Claman and Dave Asman with additional guest appearances on the CBS Evening News, Bloomberg TV and radio. He may be reached by phone at (512) 977-9900, ext. 101 or e-mail [email protected].