Ross Mortgage Corporation Celebrates 75 Years

That conversation, which has been edited and condensed for concision and clarity, follows.

“This has been particularly tough,” Ross told Mortgage Banker. “The length of this down cycle is different. There has been a great deal of merger and acquisition and exit from the business. We’ve experienced that in the past, but I think this has been a bit unusual as people did choose to head for the exits. We had to make some very difficult and serious decisions about remaining in place and continuing the legacy, if you will, and remaining in business.”

Q: At what point did you have to answer that question, tie the bow at 75 years or keep going? Was that really on the table?

“Absolutely. It has to be on the table because there is an opportunity to preserve the core. While the legacy is critically important, you have to make a good business and personal decision at the same time, as to whether or not it makes sense for us to continue. There is no question that we did have to take a look at the brutal facts of where we stand and what we need to do and what we need to accomplish in order to continue to make sense of the enterprise. We laid out those plans. We knew where the ripcord was.”

Watch it on The Interest: A Legacy of Resilience

Q: When were you making that decision? The third or fourth quarter of last year?

“Particularly as we went through the third and fourth quarter last year. Certainly rolling up under another company is an option. Merging with somebody else is an option. A quiet shutdown is an option. All of those things were on the table, and while we never got serious about any one of those in terms of engaging with others, as far as taking one of those options, they were all considered. Because we’ve been around for a long time, there’s an opportunity for us to talk to a lot of people, too, to be able to engage in a conversation about what you’re doing, what we’re doing, what could make sense going forward. Those did take place. Fortunately, as we entered into 2024 and got through the first quarter and found profitability, the spring market buoyed us and most everybody else even though there weren’t many fundamental changes in the market.”

Q: This contraction in the market really doesn’t favor the mid-size companies who lack the scale to withstand any storm. Smaller companies that are more nimble, it’s a bit easier for them to adapt to a challenging market. You originated somewhere around $500 million in 2020, on that smaller end. Would you agree that we’re seeing the middle tier of lenders at the most risk, and smaller IMBs having more of an advantage in the market?

“I believe so. When you get to the middle tier, you have a number of masters that you must answer to. Something that’s been said here over the years, and particularly based on certain business conditions that we’ve experienced because of our size, we’re able to make business decisions ‘leaning up against a doorframe with a cup of coffee in our hand.’ It does not take a huge response from investors and directors and so on for us to be able to make that change.”

Q: What kind of business decision, for example?

“One of the things that we did do when most of the large investors exited wholesale was to do the same. We were too small to really compete in that arena and concerned about regulatory change, so we became a real monoline lender for these last many years doing just strictly retail. All of our business interest and investment has been in building and maintaining the retail production network today. I think things are a little bit different, and the opportunity for us to consider a return to the wholesale and TPO market is one where we think that we have something to offer where we can niche that business. We would not want to go head-to-head with United Wholesale, but I think that based on who we are, possessing expertise particularly in government lending, is something that this emerging broker community would embrace.”

Q: Can you say a little bit more about what you mean by “niching” that TPO business?

“One expression that people here have heard me say over many years is, ‘Complexity is our friend.’ The more complex it is, the more difficult it is, the more regulation that’s required really suits a company like Ross. We’re very good rule followers. We’ve been doing this for many, many years and our ability to be able to take those products — FHA, VA, USDA, where there is more expertise required, a little more hand-holding and regulation — that we can deliver a level of service to the broker that would encourage them to wish to do business with us. That relationship at the end of the day is critically important to us, our ability to be able to form relationships with our referral sources, whether they be traditional like the real estate community, certainly our borrowers, but also members of the mortgage brokerage community, is something that we take great pride in. They’re critically important to us, and that when we do develop relationships with people they’re deep relationships and supportive of one another.”

Q: Existing home sales through this spring were lower than they were in the spring of 2023. You said RMC found profitability in the first quarter. The MBA released its first quarter performance report showing 60% of IMBs were profitable, a vast improvement from much of 2023. But, 40% were still unprofitable. Were you in the 60% or 40% in the first quarter?

“We were in the 60% in the first quarter. I don’t know if you throw it under ‘legacy’ or not, but one of the things that has always been the case here that I think is a long-term advantage is that we are purchase-money mortgage lenders. We have never based our business on the refinance market. If your business plan is really based on refi, big swings in interest rates can decimate your business virtually overnight. We’ve been ahead of the industry averages as far as new business is concerned, better than last year at this time, but heavy on the purchase side. That’s good and bad, I’d say, for the long term. Being focused on the purchase-money mortgage market is something that has served us well and is serving us today. In the first part of this year, however, you can’t ignore the refi opportunity. We are lagging behind industry averages in terms of our percentage of refinance activity.”

Q: Why is that the case?

“The message to our sales group, to our client base, is that we are here to serve them, that we will do anything that makes sense. But, the fact of the matter is, to the sales group, some of your clients are refinancing and they’re not refinancing with you. It’s a bit of a balance. We’re ahead of the curve as far as purchase is concerned, and that served us well in the first half of this year. However, there is an opportunity for us to improve overall production by focusing on some of the refi opportunity that is out there. I think that there’s a bit of a mental exercise that takes place when some would say, ‘Well, folks are locked into these low-interest-rate first mortgages from the last several years.’ That’s true, however, the other thing that’s taken place is that consumer debt is at an all time high. It really doesn’t matter if you have a low interest rate on your first mortgage if at the end of the day you can save several hundred dollars a month and improve cash flow just by eliminating some of that high-interest-rate consumer debt. We don’t want to lose sight of that, even as we maintain a significant focus on the purchase side.”

Q: The FHFA published research in March projecting the lost sales we’re likely to see in years to come due to the lock-in effect. There’s a compounding effect — every lost sale this year is a lost refinance or a lost sale in the following years. How much are you thinking about needing to adapt your business model to the reality that there will be a large cohort of homeowners who hold onto those low mortgages, and thus fewer loans?

“There’s really a couple of things that come to this conversation. One would be a consideration to return to another business line that we had operated effectively in the past, and to return to that is just one of the ways that we supplement the retail volume through an expansion and return to the TPO market. That would be one of the ways that we begin to address the continuing challenge of business volume. The other would be to recognize that while some may be unwilling to leave their present residence, there is an opportunity for us to do two different things. One would be the refinance opportunity. People will ultimately trade in some of these low-interest-rate mortgages if they find themselves over-extended. The other is to continue to focus on something that we’ve also done well over time, and that’s renovation lending. We do have some area of specialization where renovation lending is concerned. People can stay in their existing residence and just improve it in order to be able to make it more livable for them.”

Q: There are other shifts underway in the industry, as well. Everything’s becoming more technology focused. The number of sales continues to fall as loan sizes keep growing. The environmental impacts of climate change on the housing market. What a home costs and how much it costs to insure that home will likely only get more expensive. How does Ross get from 75 years to a hundred years, adapting to all of these trends?

“It’s a fair question and one that I don’t know that I can answer specifically. We’ve got the opportunity to identify where real advantage takes place in order to keep our costs under control because at the end of the day it’s really the only thing I can control. I don’t have control over many of the things that you’re mentioning. The only thing I have absolute control over is how much I spend in order to be able to close a mortgage loan. The more I can incorporate the technology into the process, the more opportunity for me to continue to deploy our best and brightest to their highest and best use — trying to eliminate as much of that ‘stare and compare’ as I can because the technology should be able to do more and more for us going forward.”

Q: Do you service your own loans?

“We do not. We were a servicer to a point, but then as the servicing income was built into the price of the loan we elected to exit mortgage loan servicing, and we’ve been essentially a correspondent with the biggest servicers for several years now. That would be another thing that would be back on the table. It's a conversation that takes place, and whether or not there is space for small companies to be servicers again. Some of our competitors are. I wish I had been a servicer over the last two years because that is an income stream that would have supplemented some of the losses on the origination side, and did for many.

Q: For the 100-year anniversary, do you still see yourself at the helm should 2049 come to pass for Ross Mortgage Corporation?

“I do not see myself at the helm. We’ve built a management team here that has been groomed to take the company forward into the foreseeable future. I have one relation who is in the business today who has an equity interest in the business. That is my sister. She’s been our CFO for some time, and my son works for us today, too, in the Chicago market area. There are Rosses sprinkled through the organization, even though the senior leadership team are not related, but have been here many years.”

Q: So, would RMC stay in the family? Is it in the family today, ownership-wise?

“It is. It is in the family today, for sure. I think that in order for RMC to be able to get to the next 25 years, it’s probably likely that some of that would be transferred to other than family members as they would both earn and deserve an equity interest in the business they’ve helped to build.”

Q: With interest rates holding higher for longer in 2024 and 2025 shaping up to be a challenging year of elevated borrowing costs as well, what keeps you up at night?

“There’s just certain aspects of the business that are absolutely finite in terms of what I said earlier. The only thing that I can control is how much it costs to be able to produce the loan. What I need to be able to do is to maintain a level of production and maintain our margin in order to be able to cover our cost to produce. That’s maybe back to sort of the legacy aspect of this, knowing that based on current reserves and the fact that we know precisely where we need to be in order to be able to cover our costs and make a little bit of money. Any significant decline in our overall production below that level is something that keeps me up at night. We’ve got a great and stable field force, but they need to be cared for, nurtured, and supported in order for them to stay with us. Today, there’s not a great deal of movement in the business, but things like mergers and acquisitions tend to rock that boat. People who would never have left their existing circumstances because they’ve been well supported and they know their systems and their people and so on, all of a sudden wind up with new management, and they don’t like it.

Q: To be fair, people might say, ‘Shoot, it’s all the same management. We’re out because nothing ever gets freshened up.’ As you’ve gone through this downturn, have you lost some of that field team who you’re trying to nurture and support and take care of?

“We’ve had some attrition, but it’s been very modest, just maybe a couple people. That’s been it. We’ve been fortunate. We’ve added people and some of the more recent additions are making a significant contribution. Net, we’re well ahead.”

Q: You decided not to pull the company’s ripcord. Are you pulling your own ripcord soon?

“Oh, I think, yes. I’d like to think that I would continue to be involved, from a strategic point of view, but without any day-to-day responsibility. You know, keep an office for me, give me a place to hang my hat. But again, the people that are running the business today are doing a great job, and they’re making good decisions. They’re making tough decisions at times. So yeah, I see myself continuing to be involved from a strategic point of view, but not on the day to day.”