Seven Habits of Highly Defective Mortgage Bankers

By Watts, Corky; Garrett, Joe | Mortgage Banking, November 2006 | Go to article overview

Seven Habits of Highly Defective Mortgage Bankers


Watts, Corky, Garrett, Joe, Mortgage Banking


As consultants to the mortgage banking industry, we work with and get to know a wide variety of companies-some successful, some not. What have we seen that differentiates the long-term winners from the also-rans or those headed for eventual failure? Successful companies develop solid infrastructure with talented management to execute clearly defined strategies. Management is disciplined, objective and focused on profits. Also, building capital and growing liquidity are always high priorities. We never see companies whose drivers are simply mortgage products. Over and over again, what we see is that it's talented people, execution and operations that drive profitability. And over and over again, struggling companies tend to all exhibit the same defective habits at the senior levels. There are seven behaviors or habits we tend to see at all the underperforming companies with which we have worked.

1.

Not having a business plan and budget

We hate most clichés, but one that has some truth to it is: "Plan your work and work your plan." Without a plan and a way to measure its success, managers ultimately find themselves operating their companies in an aimless and unfocused manner. If the business environiment is positive, these companies may make a profit in spite of themselves.

But when business conditions change and there is no plan in place, many managers become paralyzed and unable to make appropriate decisions. In such situations, we often see managers reverting to crisis management, making irrational decisions to address declining profits and eroding capital.

A business plan and corresponding budget provide a roadmap for managers. Reviewing the plan and comparing financial results with the budget help management make objective and informed decisions.

At top companies, we see that the entire management staff is involved, and reviews are done on a monthly basis. It's being proactive rather than reactive. As we like to say, the real job of senior managers is not to run around and put out fires so much as it is to plan ahead and grow the value of their company.

2.

Not being focused, and trying to be alll things to all people

A common flaw of many smaller mortgage bankers is their attempt to offer every loan program in the universe in the hope of capturing every loan. This strategy requires the product development staff to become a student of every loan program and understand all the various guidelines of every investor.

The costs to maintain this strategy are high, and loan errors increase during all the stages of loan processing-from originations through loan settlement. A full menu of all the latest products works at Calabasas, California-based Countrywide Financial Corporation, with its proven systems, procedures and experienced staff, but we do see lots of problems in companies that offer too many loan programs.

Top-performing mortgage bankers tend to be focused on what they do well and what generates the most profit for the company. One by-product of such a strategy is that employees have a solid understanding of the guidelines, processes and procedures so they can move loans quickly out the back door.

Being all things to all people can work, but it takes additional staff and lots of training throughout the organization. If you don't have the resources, it may not be a good idea to offer too many products.

The sooner you get loans purchased off the warehouse line with little friction and mistakes, the more likely your company will meet its margin requirements and corresponding profits. We know that there is always pressure from salespeople to add products, and you cannot completely ignore this.

Still, we have seen a correlation where companies having too many products tend to have very high operational costs, many of which are attributed to cleaning up mistakes and dealing with investor kick-outs.

3.

NOT HAVING ACCURATE AND TIMELY MONTHLY FINANCIAL STATEMENTS

We've visited many companies that don't produce their monthly financial statements until 30 to 60 days after month's end. …

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