Welcome back! This is the sixth in a series of articles on leadership. Thank you to the many of you who have written comments on this series of articles, and my apologies to those who looked for my article in last month’s edition. I am embarrassed to say that I missed the deadline because I was thoroughly enjoying our family vacation. Actually, the topic of vacations is a good segue into this month’s article on the topic of “clarity.”
One of the primary benefits of a vacation for me, and I suspect for many others, is that vacations provide an opportunity to slow down and reflect on our lives, our careers, our business, and our strategic plans, purpose, direction and focus. For me, a vacation helps me to get “re-centered” and regain clarity on exactly what I am doing and just why I am doing it.
Do you recall that Nationwide Insurance TV ad with the message, “Life comes at you fast?” It’s so true! Our hectic lives can cause the clarity of mission and purpose to get lost in the “tyranny of the urgent.” My favorite Nationwide TV ad is the one where the dad is pushing his young son sitting in a tree swing. With each push, the young kid swings out of view on the TV screen only to reappear a half-second later. This happens several times until the very end of that clip when it shows dad getting knocked off his feet when an oversized teenager swings back into view. As the father of two teenage daughters (oops, make that one teenage daughter … the oldest just turned 20), I am painfully aware of how fast life comes at us!
Never has there been a time when having clarity on what we are doing and why we are doing it been so important. With all of the challenges facing our industry, there’s more confusion about the right strategy for you personally and for your business. Leaders must have clarity of vision! Beginning about “vacations” is an appropriate introduction to this month’s article … the sixth “C” (characteristic) of good leadership: Clarity!
I am sure you have heard this definition of insanity: “Expecting different results from the same old action(s).” An example of this kind of insanity was played out in a tragic real life Civil War battle. I wish I could recall the name of the battle, but I am sure that one of you reading this article will remember the name of the battle I am about to use as an example. The battle became famous because of the commander’s insistence to repeatedly execute on a failed strategy that cost a needless number of lives. It was the epitome of bad leadership. The short of the story is this: There was a commander in charge of a large number of troops who had been given orders to take a particular enemy stronghold. Unfortunately for the opposition, the enemy’s stronghold had a real strategic advantage because of the elevation they occupied. Any attempt to overthrow that stronghold from a ground offensive was doomed to fail. To take that hill, it required a different strategy. Nonetheless, that stubborn and “misguided” commander/leader sent wave after wave of troops into battle to conquer the enemy stronghold. Unfortunately, their offensive position was horrible and each wave that charged the stronghold was slaughtered before they could even get close to their objective. It should have been obvious after the first or second attempt that this was a hopelessly failed strategy. Sadly, that commander’s leadership brought about needless death and destruction to many. Beyond the obvious, we can learn much from this otherwise tragic battle.
In the April edition of National Mortgage Professional Magazine, I wrote about how important it was that a leader leads with conviction. In May, I wrote about how important it was that a leader lead with confidence. Then in June, I focused on the how leaders were often very charismatic.
It is easy to see in the story above that that Civil War commander (leader) possessed all three of these characteristics. In spite of overwhelming evidence to the contrary, this commander had an insane amount of conviction and confidence that his strategy and tactic would ultimately succeed. And consider this, he must have been one amazing (albeit insane) charismatic leader … otherwise, how else can you explain such an unwavering allegiance of the many soldiers that blindly executed a battlefield strategy that obviously doomed them to certain death. This commander possessed three of the seven-Cs of leadership (conviction, confidence and charisma), but he was woefully lacking in another balancing characteristic, clarity, to the point of being certifiably “insane.” Sadly, we have many such leaders in this country, and I’d suggest in this industry, who are leading with a failed strategy for a sustainable and lasting financial recovery. This is the reason I am writing this series of articles on leadership—to set forth a standard and lay a foundation for a basic understanding of the key elements that go into great leadership.
The focus of this month’s magazine is on wholesale as a business strategy, and so I am going to use this topic, wholesale, to focus on the sixth characteristic of leadership, clarity.
When considering the topic of wholesale or any strategic direction for that matter, you have to start with clarity of the “macro” perspective, or as one marketing executive recently put it, you must do your best to recognize the “powerful patterns” of today’s current events that set up a sustainable trend. Opinions are, as the expression goes, like noses … everybody has one. However, opinions can be formed based upon a wide spectrum of input not always based upon well-established trends or powerful patterns. Opinions frequently contain an element of emotional non-factual bias/perspective and when used in decision-making, can lead to wrong conclusions that can negatively influence strategic direction. To gain clarity on a convoluted topic such as wholesale lending, you really need to study macro trends or those powerful patterns that aren’t always easily spotted. That is … why are an increasing number of companies retaining our firm, Mortgage Banking Solutions, to help them sort out and analyze trends and powerful patterns?
Let’s look at six powerful patterns that will bring clarity to the discussion of whether or not wholesale lending is a viable strategy for the future or not.
Powerful pattern #1
Net worth requirements of all independent mortgage bankers has increased tenfold in the last two years. Independent mortgage bankers were heavily involved in wholesale lending. Many independent mortgage bankers have been forced out of the wholesale lending business because they lacked the capital to keep the necessary approvals that would allow them to continue in wholesale lending. Capital/cash is king!
Powerful pattern #2
The U.S. government filed a $1 billion lawsuit in May of this year against Deutsche Bank. It is very probable, if not absolutely certain, that, as a result of this lawsuit, many large institutions that own or have an interest in a mortgage lending operation will divest themselves of that operation one way or the other, especially if mortgage lending is not their core business. Simply put, the risk of being embroiled in a $1 billion lawsuit with the U.S. government is not worth any return they could otherwise earn from an investment in a mortgage lending platform. I cannot stress enough what a significant development this is! I have been predicting since the announcement of this lawsuit in early May of this year, that it will result a major seismic shift of “who’s in” and “who’s out” of the mortgage business. The ramifications are huge and far-reaching! The most significant is the likely resurgence of well-capitalized independent mortgage bankers.
Powerful pattern #3
New non-regulated entities with very deep pockets and a previous investment history in mortgage lending are entering or re-entering the markets. Wilbur Ross’ investment in the old American Home platform and Lewis Ranieri, via his Shellpoint Partners LLC joint venture, made a recent acquisition of New Penn Financial. Our firm is active in the mergers and acquisition business, and we have been contacted by a number of funds about making an investment in mortgage companies. This should be an encouraging sign to everyone reading this article.
Powerful pattern #4
I am going to approach this fourth point with what is a rhetorical question for me: Organizationally speaking … can large financial institutions more cost-effectively originate loans than a mortgage brokerage company can? And I stress the words “organizationally speaking. After more than 37 years in this industry working all aspects of loan originations from almost every position and angle, I would have to say the answer is unequivocally “No!” Mortgage brokers are, by far, the most highly-effective and cost-efficient origination “machine” this industry has ever seen. Another way to say this is that mortgage brokers are really good at “sales” and have a track record of originating loans with a very low cost of operations. This is a huge and very important point that will drive the final outcome of this whole topic, regardless of what side of the issue you may find yourself on. As we all are painfully aware, there’s a lot more to this discussion than just the cost of originations, which brings me to the next point of clarity.
Powerful pattern #5
Again, I am going to approach this next point with another rhetorical question: Generally speaking, do mortgage brokerage firms have the same degree of concern for quality and risk management as does a larger financial institution? Again, I would have to say the answer is unequivocally “No!” Mortgage brokerage operations and many smaller thinly-capitalized mortgage banking companies do not have the same appreciation for loan quality and risk management as does a large financial institution.
Powerful pattern #6
We are experiencing a significant attrition in the number of licensed loan originators across the country. Some states, like Texas, Florida, Michigan and others, are reporting an exodus of as many as 85 percent of all previously-licensed LOs. This should be encouraging to those who have made the decision to hang in there and stay in the business, but also sets up for another not-so-obvious consequence. I announced this consequence at last year’s Mortgage Bankers Association Annual Convention in Atlanta. It is this … I see the very real possibility that we may be facing, as an industry, a capacity crisis. By that, I mean that there will not be a sufficient number of licensed LOs to take all of the applications once the real estate market begins a sustainable recovery.
There are many more “powerful patterns” I could write about that exist and even more yet to come. The purpose of this whole discussion as it relates to wholesale was to demonstrate how you can achieve clarity as you set your course to be a leader.
I know some of you are dying to ask me my opinion on the future of wholesale. Let me just say that I personally believe we will see a resurrection of wholesale, but not as it was in the past. I am well aware of the fact this is a fluid topic and that many have predicted that mortgage brokers are being (or already have been) regulated out of business. Some even refer to them as “The Walking Dead” … implying it is a dead business strategy, only existing on life support because of the desperate need for loan volumes and that is the channel that has worked in the past, so they are going to ride it to the end. Some, on the other hand, hold on to the belief that there is a place for the mortgage broker and that we will see a miraculous “Resurrection of the Dead.” I am of the opinion that it will be more of a caterpillar to butterfly type of metamorphosis, rather than a resurrection of the way it was.
I started this article talking about the benefits of a vacation and the importance of taking time to slow down and kick back, and from this more relaxed place, sort out the issues that may be confusing and unclear. It may not be coincidence that this article is being published in the month of August at the height of the summer vacation season. Recognize that this is an excellent time to kick back in a more relaxed state, and get clarity and focus on the direction of the industry. If you struggle with getting clarity, I would suggest you consider sitting down and to start writing, not with a computer, but with a pen and paper. Something happens when you force yourself to sit down and handwrite things out on paper. It forces us to slow down and reconnect with that inner voice I believe each of us has, and that if you keep at it, that voice will bring clarity and make you a more effective leader.
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. 10, or e-mail
[email protected] or
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