“Sabrage” – or sabering – is the name of the party trick. It’s well performed, I'm told, at mortgage conferences.
Remove the muselet, that wire cage which holds the cork in place. In one, easy motion sweep a saber (or any heavy kitchen knife) upward under the lip of a champagne bottle. Watch the cork – and contents – fly, free from the bondage of the bottle. Cheers!
“Jim and I met at one of the Mortgage Bankers Chairman’s conferences,” says Lisa Springer, CEO and senior partner of Stratmor Group, recollecting her first encounter with Jim Deitch, CEO and co-founder of Teraverde. The two mortgage advisory firms announced their merger last Friday. Operating under the Stratmor name, the expanded entity combines each company’s respective programs, technology, and subject-matter expertise to deliver deeper advisory solutions for the entire mortgage banking spectrum.
So, you might say, it’s toasts all around again, roughly a decade later.
“He had this really cool trick with a champagne bottle and a saber where he was able to pop the cap off of the champagne bottle,” she laughs. “The cork with the saber was the coolest thing.”
First impressions matter, but the mortgage business – and mortgage advisory business certainly – is one built from bricks of enduring and evolving relationships. Beyond the ballroom antics, Springer remembers that Deitch acted as “a bit of a mentor” for her at that conference, one of her first CEO conferences with the Mortgage Bankers Association (MBA).
“I really got to know him from that perspective,” she says, “and then we just started connecting other partners with Jim to see their capabilities to really understand their market segment.” Since then, the firms have shared a mortgage advisory orbit, the partners of each firm pulled closer together as opportunities for collaboration – absent overlap – emerged.
“It’s a merger of equals, and those equals, in my view,” Deitch says, “are all very high performing individuals at the partner level and at the senior level, and right down to the people and the point of contact with the clients.” Deitch says that he has been approached “probably 20 times” since starting Teraverde by people wanting to buy or merge with the firm. He politely refused every time.
“This is the only one I didn’t," he says, "and it's largely based upon culture because if the culture’s right, the organization will prosper. If the culture is not right, it’s very hard to adjust culture.” Complementary skill sets were also a major factor.
However, the notion of merging the firms has been bandied about for years.
In 2017, Stratmor and Teraverde were jointly engaged to help a lender implement a loan origination system. Stratmor was focused on strategy and workstreams – how to roll it out. Teraverde had their sleeves rolled up, doing the configuration – actually rolling it out.
“It was a really positive experience for the client and for us. We had complementary skill sets in that regard,” says Springer. “Then we just started doing some research and realized that we had complementary skill sets for M&A, for strategy work, and for business intelligence. There was really great synergy and not much overlap, even in our client base.”
Conversations continued, then turned more serious this past January. Joining forces meant expanding each company’s client base, not competing. Complementary skill sets meant expanding the value proposition for those clients, going deeper on problems needing solving. “Not much overlap” meant there was no need to lay people off or make any major staffing changes.
Deitch says the merger wasn’t something that happened “just immediately.”
“It really was a growing together based upon mutual respect of the partners,” he says. “I had an opportunity to work with Garth Graham on a number of M&A deals. Working with Michael Grad was really a very positive experience.”
The pre-merger collaboration that sealed the deal involved Stratmor’s own borrower satisfaction survey program, a service called MortgageCX. Stratmor has been conducting the survey and report writing manually, for the most part, for several years. Over a million borrowers have responded to the survey, says Springer, a robust data set that the firm wanted to make more use of.
“That was kind of our test to see how the relationship would work after the build-up of having these discussions and talking about it,” Springer explains. “It was our proof of concept and it really came together quickly and the outcome was fantastic. It got both the Teraverde and Stratmor teams excited because we had that working relationship. It was an easy sell afterwards when we made the announcement internally. It just was a no-brainer for everybody.”
Deitch agrees, saying that after collaborating on MortgageCX, “it was a relatively easy decision to make to say, ‘Let’s put the companies together,’ and I think it’s based upon the mutual respect among the partners, the collaborative nature among the partners.”
He says that that kind of culture fit was “first and foremost” in his mind.
"The focus on adding value to clients in a very fast, efficient, and productive manner," Deitch explains, "is really the DNA of both companies. If you have that DNA of both companies, it’s relatively easy to work through the mechanical aspects of [merging].” He adds that those mechanical aspects “just accrete to each other and extend the depth of which one can go into a particular customer.”
Teraverde may have “a little more focus on the financial side of the consulting because we have several CPAs on board. We may have a little more of the data centricity because we happen to have this developed,” Deitch continues. "When one looks at the capabilities of the Stratmor team in peer data, in some of the process side of things, the conception of the mortgage [satisfaction] piece, some of the other client-facing elements that Stratmor does like mystery shopping as well as benchmarking, it's just a natural ability to bring things together."
Springer and Deitch both say that the difficult mortgage market of the past seven quarters was not the driver of the decision to merge. It’s been a busy time for mortgage consultants.
“It doesn’t matter how much they need consultants,” says Springer, “it’s still a tough market and money’s tight. The whole mortgage industry experiences the tightness of that, including consulting firms. But, because of our M&A practice and because of the diversity that Teraverde has within their practice and the focus on risk and the technology that they provide, and some of the LOS support that they do, we have a good balance and a good foundation to survive that market.”
What to do about seven consecutive quarters of losses is the number one question on every lender’s mind, says Deitch. “It’s very, very busy with clients that are seeking some assistance. This was really an opportunity to deepen the skill sets, expand the breadth.”
In fact, when gaming out the merger, Stratmor and Teraverde found they shared a handful of customers that together they could serve much more impactfully. Deitch says they have heard positive feedback from clients expressing a desire to be helped in some kind of extended way.
“It’s really one of those few mergers that both parties can say there’s no adverse impact to employees and there’s very little overlap in customers, and that I think is a very rare element,” says Deitch. Rarer though, in his opinion, “is where one can say the cultural match between the principles is so close in terms of customer focus, in terms of how one does business and how one thinks and treats peers and team members and clients. The cultural match is unbelievable.”
When asked what industry challenges the expanded advisory firm feels better prepared to respond to following the merger, Deitch points to the opportunities in home equity. St. Louis Fed data show total homeowner equity was roughly $32 trillion at the end of the first quarter of 2024 – double the amount of total outstanding mortgage debt and eight times higher than the highest refinance period ever, he says.
“The equity growth has been so phenomenal, and the empowerment of the consumer has been so high,” Deitch explains, “that the opportunities are really to say, ‘How does one serve that market, both in terms of the generational wealth transfer and the ability for that generational wealth transfer to also empower first-time home buyers?'”
There might not be many refinances in the near future. Lenders should be asking: what else is out there?
Springer, for her part, sees Stratmor better prepared to help their clients adapt to “the new normal.” It’s about finding market share in this market – not waiting for whatever might happen a year or two from now. That might be home equity. It might be improving borrower experience – or employee experience, for that matter. Likely, it's all of the above, to varying extents.
“Through our new relationship with Teraverde, I think we’ll have access to more real-time data and information to do those analyses,” says Springer. “We’re seeing more opportunity in market share and adapting to the new normal, to really focusing on, how do we get more business?”
Teraverde conducted some recent lender surveys in which lenders reported that maximizing the technology and data they already have available could improve their profitability by an average of $2,700 per loan. That’s profitability left on the table. The expanded advisory would very much like to fix that for their customers.
“There’s a real opportunity to be more insightful,” Springer continues, “and to give a really powerful, insightful direction on where they’re headed.”
