To Our Clients, Colleagues and Friends,
- Are mortgage bankers getting smarter about compensation? We’re finally seeing some pushback on the outrageous commission splits we used to see, and 90-10 splits seem to be going the way of the dinosaur. We’re also seeing salaries in general adjusting downward compared to 2005-06.
- Four years ago, we saw Ops managers at $150,000 a year. We saw that drop to $90,000 as the mortgage world started collapsing in 2007 and then watched it fall even lower in 2008. It’s coming back, but it’s still a long way from the peak a few years ago.
- A hero has died, Miep Gies passing away last week at age 100. She was the woman who hid Anne Frank and her family in her Amsterdam apartment during the Nazi occupation. If we could name some sort of award to people who act who display great courage, we’d call it the Miep Gies Award.
- With Mark McGwire admitting the obvious about his steroid use, it’s time to remember the true record holder for the most home runs in one season. Roger Maris hit 61 home runs in 1961, passing Babe Ruth by one. Yes, we know he played in a longer season, but the asterisk next to his record is long gone. The movie about him (*61) is worth renting.
The middle photo of McGwire was when he was right out of college, and we remember him vividly as a tall, lanky, scrawny 1st baseman for the Oakland A’s. The third photo is when scrawny Mark started doing his Arnold Schwarzenegger imitation. At least Arnold admitted his steroid use from the start.
- We got a few e-mails about our thumbs down on Up in the Air, and watching George Clooney travel from city to city made us think of Willie Loman. How can you be in the housing finance business and not think about Death of a Salesman? Willie Loman’s last act before taking his life was making the final payment on his mortgage, and the man who spent a lifetime in search of the American Dream finally achieved a piece of that dream by owning his home free and clear. In fact, his wife’s last words at the gravesite were “Willie, why did you do it? We’re free and clear, Willie, free and clear.” A few parts of the play feel dated (it was written 61 years ago) but it’s still a timeless piece of literature. And isn’t it interesting that paying off one’s mortgage was once such a big party of the American Dream?
- We hate to be cynical, but sometimes we think people view the American Dream as getting a cash-out refinance at 4.5%.
- Look up the performance of AmeriCredit’s sub-prime auto loan portfolio. Their 30 day delinquencies were 9.3% in December and their 61+ day lates were only 3.09%. That looks pretty good compared to subprime mortgages, doesn’t it? Wouldn’t you think subprime auto loans would be a bigger disaster than subprime residential? But think about all the gardeners and contractors who depend on their Toyota pick-ups to carry their tools when they go to work. The theory is that you can always sleep in your truck, but you can’t drive your house to work.
- Although it was filmed fifty years ago, Splendor in the Grass may still be the most poignant story of young love ever made. Here’s the final segment of that movie, and if you haven’t seen it, this just might inspire you to rent the movie: http://www.youtube.com/watch?v=ylal5gfj_kY&feature=related. Watch it with your wife or husband or date. Shocking as it might sounds, you could even take your spouse asyour date.
- We meet a lot of bank Presidents, and they always impress the heck out of us. When things are going well, it’s the most fun job in the world, but in tough times like these, it’s probably the toughest job in the world. If we really did get to pass out Miep Gies Awards for sheer courage, we’d give them to all the bank Presidents we know.
- We’ve done a fair amount of Due Diligence for banks acquiring mortgage banking companies lately, and if you’re a bank which is thinking about buying one, check out page nine of the January 15th American Banker. They ran an article we wrote on the things banks must look at prior to an acquisition. One example is that lots of banks want to project earnings once their capital allows the mortgage company to really grow its volume. That’s fine, but we like to show the acquiring bank what things will look like if margins drop by 30% and volume drops by 50%.
- We’ve said it many, many times, but we still think most of the regulators’ criticism of brokered deposits is misplaced. They seem to think that brokered deposits cause management to make bad loans, but it’s really the opposite. Banks that make bad loans tend to use brokered deposits. The bad loans come first. And let’s remember that correlation is not causation. Crack down on bad loans, not brokered deposits.
- Speaking of banks, we were just at NexBank in Dallas , and our hotel was in nearby Frisco. If you’re from San Francisco , that will make you laugh because we consider it really bad form to call our fair city Frisco. San Francisco has had a long tradition of eccentrics, and one of the biggest was Joshua A. Norton. He made a fortune in the Gold Rush but lost it all through speculation, and when he lost his money, he also lost his mind. He declared himself Norton I, Emperor of the United States and Protector of Mexico , wore a Royal uniform, and made various declarations. One was that he declared it illegal to refer to San Francisco as Frisco, and he wandered the streets handing out citations to people who referred to it is as such.
He convinced the papers to print his various declarations, a list of which is attached. While everyone knew he was crazy, people loved him. Restaurants gave him free meals, hotels gave him free rooms, and when he died, 10,000 San Franciscans turned out for his funeral. - We have a ton of coffee mugs given us by banks we’ve done work for, and here are a few comments: We normally don’t like light lettering on dark backgrounds, but the Liberty Bank mug is okay, The lettering is big enough to make it work. We love the look and feel of Farmers National Bank (“celebrating 100 years”), but the gold lettering doesn’t stand our enough. First Security Bank has bold lettering that jumps out at you. Nice. The Goldman Sachs one is boring, and we’re surprised they even have them. We love Alta Alliance Bank and think the world of their management, but guys, the gold lettering on the green cup is almost invisible. Our favorite is the Golf Savings mug. We like the shape, the size, and the clarity of the name. We realize that how your coffee mug looks isn’t quite as important as your CAMELS rating, but hey, it’s a lot easier to your coffee mugs look cool than to get your CAMELS rating down to a two.
- Can you believe we write about bank coffee mugs? Or even think about them?
- Are you really bored? We have an idea for you. Collect coffee mugs and giveaways from banks and thrifts that no longer exist. Great Western, Home Savings, American Savings, Homeowners, Dime, Imperial, Gibraltar , State Savings, Lincoln, Citizens. You could display them on a website, and in the background, you’d have someone singing Where have all the flowers gone, but you’d change it to Where have all the S&L’s gone….
- Wouldn’t you agree that mortgage banking is a commodity business? Everyone does the same types of loans (GSE and FHA), everyone sells to the same investors (BofA, Chase, Wells, and directly or indirectly, FNMA and Freddie Mac), and everyone uses the same underwriting standards. Why, then, is there such a disparity in profitability. We see top performers making 100+ bps per loan, and we see companies struggling to make 10 bps. Why? There’s no Secret Sauce, so why?
In the past year, the biggest cause of under-performance we’ve seen has been leakage. If you build in a profit of, say, 125 bps on a loan, you should be realizing 125 bps. The most profitable companies have almost no leakage. The strugglers always do.
Take Bill & Ted’s Excellent Mortgage Company and let’s compare it to Bob & Tom’s Horrible Mortgage Company. Both are in the same city . Both are retail originators. Both pay the same commissions. Both originate FHA loans. Both sell their loans to BofA and Wells. Both use DataTrac. Both use Optimal Blue as a pricing engine. Both build in the same profit margin. But Bill and Ted net 120 bps on each loan and Bob & Tom net 20 bps. We see this all the time, and the reason for the disparity in profitability is leakage. The Horrible Mortgage Co. is just not realizing on their loan sales the margin they built in. There are a finite number of reasons for this leakage, and we don’t have room to go into them here. But if there’s one thing you should look at if you’re uncertain why you’re not doing better, look at the gain-on-sale you build in and compare it to the gain-on-sale you actually realize.
Maybe there needs to be a Leakers Anonymous. “Hi, my name is Bob and I suffer from leakage.” Actually, the good news is that you don’t need 12 steps to get better. But you do need to see what your numbers are. Once you do that, the rest is pretty straightforward.
Richard Nixon’s 97th birthday just came and went with nobody noticing, and won’t it be interesting to see how history views him 50 years from now? If Martin Luther King were alive today, he’d be 81, and it seems that with every passing year, his message of love and tolerance looms ever larger.
“Helping mortgage lenders increase revenues, control costs, and better manage risk.”
Joe Garrett (510-469-8633)
Corky Watts (408-395-5504)
Mike McAuley (281-250-2536)