I was in Chicago during the NFL draft a few weeks ago, not as a potential player of course, but to meet with consumer direct lending executives from around the country for a Stratmor workshop. The event focused, in part, on the strong growth that this channel is seeing in both refinance and purchase volume. This represents a big opportunity or a threat for lenders, as such a change will create winners and losers in the future.
Being there for the NFL draft, I couldn't help but notice there was another tale of winning and losing taking place, as franchises compete to draft the hottest talent in pursuit of creating a winning team. It's kind of like what we do in the mortgage business except our players are all free agents, mostly discards and cuts from other teams.
Shortly after we were talking about what it would take to win in the consumer direct lending business, the NFL finally took action against Tom Brady and the New England Patriots for yet another rule infraction, indicating, perhaps, a cultural problem that might exist with this professional sports franchise. I can already sense angry fingers reaching for keyboards, but we all know about deflategate and the team's past infractions. The question that struck me was: is there a lesson here for our industry?
It's about culture, made clear by a pattern of behavior. Is it that big a deal that somebody took some air out of the game balls? Probably not. Did it have a big enough impact on the game to guarantee a Patriots win? Probably not. Does it demonstrate a culture that drives them to do anything in order to succeed? I think it does.
So, the question becomes: are we building similar teams that will do anything to get the next loan closed? And how does culture play a part in that?
Federal regulators have written rules and levied fines that seem intent on changing the culture of our industry. The shame is that it had to come to this before we realized that doing anything to get the next loan through was not appropriate. It seems like someone could have guessed that not verifying income would lead to problems. And creating exotic mortgage programs, and ignoring ability to repay, would be like drafting football players with no proven record or ability to play the game. No one in the NFL does that, (other than my hometown team in Washington, D.C.). But when risks are ignored, and a culture of "do anything to win" is created, the regulatory pendulum often swings all the way back.
Now, we're operating in an environment where our expenses have bloated out of control as we try to mitigate our risks by checking checkers and adding more documentation layers to our deals. Has our culture now swung back too far in the other direction? Are we now too conservative to profit from the opportunities that exist in the marketplace? Are we too afraid to perform the function our businesses were formed to perform?
Dampening the effect of this wildly swinging pendulum is important and for an example of how to do that, we can look to the NFL. The league didn't write a bunch of new rules in response to the Patriot's infractions. Their rules, like our own industry's, were already on the books. All they did was enforce them. Of course, it now looks like the NFL has taken a page from the Consumer Financial Protection Bureau's playbook and may lay down a fine that seems extreme given the nature of the actual infraction. But at least they are not creating a new rule about the inflation of balls or implementing other equipment restrictions that will end up hurting the game and players.
On the other hand, the penalty isn't just for letting the air out of a few game balls; it's about creating a culture where people are willing to do anything it takes to win. We should take care not to duplicate that mistake. After all, if you build a culture of success, where integrity is expected, recognized and rewarded, then good results will follow. Although the Patriots are obviously a winning team, perhaps the lesson is that winning at any cost can be costly indeed.
Garth Graham is a partner with Stratmor Group and has over 25 years of mortgage experience.