Much like today's other surviving independent mortgage origination firms, Pacific Residential Mortgage LLC (PRM) has endured the business changes, housing environment correction and compliance overhaul that our entire industry has experienced over the past five years. While this has not been without pain or sleepless nights, we did it without changing our overall business philosophy and only slightly altering our general business plan. Necessary course corrections are continually being made and should be. From these changes, we have learned how to adapt to current conditions and turn a profit from less-funded volume, all the while, staying focused on our loan originator/employee-centric, relationship-driven referral model.
As a point of reference, our firm operates in four states with a staff of approximately 130, half of which are full-time loan originators (LOs). We are a purchase-oriented operation and we earn almost all of our business off of referrals from past clients and real estate professionals. This business strategy hasn't changed over the course of our seven years and will remain the basis of our business model going forward into 2012.
Bending, but not breaking
The purchase side of the referral-based model of our business took a beating these past few years. As refinances ebbed and flowed, we discovered that too many of our origination staff had let their purchase business deteriorate. The causes for this vary. Refinances were the low-hanging fruit. Online lenders and big banks/servicers effectively competed for refinances and even purchase business by efficiently targeting their existing customer base. Long-term relationships with Realtors yielded diminishing results, as Realtors themselves experienced a slowdown or left the business. Some experienced Realtors made the shift to real estate-owned (REO) listings. Clients that haven't shopped us in the past started doing so. And then there’s the media reporting that independent mortgage companies were unsafe and unscrupulous and that banks and credit unions are the secure lending resources. Politicians vilified "mortgage brokers,” while at the same time, demonstrated that they didn’t understand the home loan process or consumer behavior in the slightest.
Rather than allow these issues to break us, our 2011 business plan focused on recruitment of quality originators and processing staff with an eye to maintaining profitable levels of production. We also focused on the sustained employment of our sales support staff which includes our corporate, mortgage banking, IT and marketing groups. I mention this because medium- and large-sized companies need to have significant structure in place in order to successfully operate as a mortgage banker while supporting LOs. Today's higher costs of originating a closed loan, plus the compliance and quality control (QC) overhead that goes along with daily operations, is much more expensive than in the past. All of these changes mandate that LOs receive increased company support, none of which is available for free or easy to come by.
Our overall 2012 plan will focus on organic internal growth, while selectively adding origination staffers who share our way of doing business. This organic growth plan has already been put in place and will be refined in 2012 to address business conditions.
The game has changed … or has it?
A lot of people in and around our industry describe today's marketplace as very different from what they consider a "normal" marketplace. It's true, today's loans are harder to find and harder to fund than in any time during most of our careers. Then again, 2005 was not normal and neither was 2003. In fact, it hasn’t been normal any time since 1998 when our industry embraced credit scoring and automated underwriting engines (Aunt Fannie and Uncle Freddie have probably been regretting the initiatives they pushed upon us back then).
So what was normal? Normal was when a loan originator had to fully document a consumer's income and assets and then fully verify that documentation. Appraisals were performed and underwriters actually scrutinized those appraisals. Federal Housing Administration (FHA) loans required FHA inspections. Lenders were careful in handing out hundreds of thousands of dollars and they actually expected to be paid back in full. Debt ratios above 36 or 41, depending upon the loan type, required teeth-pulling in order to receive loan approvals. We are still looser today in many of these categories than when I got into the home loan business 17 years ago.
Normal was also when, in a purchase-oriented marketplace, LOs actually had to go out and "originate" a loan. Personal relationships were essential and quality service was key.
The game itself really hasn’t changed. What has changed is how we all will individually focus on the “normal” of how loans are originated.
Getting up close and personal
In focusing on what we see as “normal” and “essential” for business in 2012, PRM will emphasize having our entire sales team be face-to-face oriented instead of conducting business through other more passive means. Our management team is engaged in coaching calls and live meetings with our mortgage bankers, not as micro-mangers, but as team leaders to enable individual success, but that is not enough. If we are asking our sales team to maintain this type of behavior then we, as management, must also lead by example. Effective sales managers can no longer be passive—they must truly manage sales and sales-related activity, as their titles suggest. This creates a sense of accountability from the top down that is necessary to compel originators to step out of their comfort zone and get into a win-win mindset.
Face-to-face communication is the way to go if you expect to earn referred business. This means literally getting face-to-face with consumers so that they become clients. It means wearing out the rubber on your soles and your tires to get in front of referral sources such as Realtors and other real estate professionals. There is no substitute for frequent face-to-face interaction if you intend to create long-lasting and profitable relationships. Salespeople and their management need to practice this method as often as possible.
If you cannot be face-to-face, the phone is the next best communication option for sustaining and building relationships. It is still you coming through on a live and personal basis versus something less personal like an e-mail, a text, a blog or something similar. Disciplining yourself to have someone regularly hear your voice, even if they cannot see you live and in person, will make a difference over those who don’t get up-close and personal.
Refinances are not where professionals put their energy
Here today, gone tomorrow … my firm’s long-range view has been that refinances will diminish in 2012. Given that view, a year ago, we channeled energy to expand our purchase-business. Ask yourself the following, "If rates go to six percent, what happens to my pipeline?" Be honest with your answer. That’s what we did and we didn't like what we saw. Today, thanks to hiring outside sales trainers while performing our own internal sales coaching, we are achieving our goals with stronger sales results due to LO buy-in. Simply stated, this sales-focused development activity works.
Picking up dollars and stepping over nickels
We all know it is extremely difficult to predict mortgage loan volume over the next 12 months. This reality necessitates that our revenue and expense structure be flexible in order to handle less volume or to support increased volume. Over the years, our firm has made continual enhancements in this regard and will continue doing so going forward. We also know that spending money on developing future sales isn't tied just to just running ads and circulating product flyers—these are support elements in our marketing platform. Investing money, appropriately, to enhance our client experience, to make loan origination more efficient, and to further develop a strong, relationship-driven sales force able to originate loans, will all be key to our success in 2012 and beyond.
Eric Wiley is chief operating officer and co-founder of Pacific Residential Mortgage LLC. He has served on the board of the Oregon Association of Mortgage Professionals (OAMP) and is an active member of the Oregon Mortgage Lenders Association (OMLA). He may be reached by phone at (503) 905-4902 or e-mail [email protected]