Anyone will tell you that Thanksgiving is about giving thanks for all of the wonderful things that we enjoy in our lives throughout the year. That's true. In fact, I said much the same in this space last year.
As I recall, I wrote about hunters and gatherers, and used Katniss Everdeen and the second installment of the "Hunger Games" movie that was released a year ago. This year, much has changed, as I would need to use the third installment of the "Hunger Games" as a metaphor for how to survive in a tough dystopian climate.
So, obviously not much has changed in Hollywood, as they recycle dumb movies, with the best example being the second installment of "Dumb and Dumber" — now that is a lack of originality. So, I guess what this holiday is really about is second helpings. After all, no one has a single helping of Thanksgiving dinner. That's just not American.
By the end of Thanksgiving Day, the vast majority of us will be slumped on a couch, with our pants unbuttoned, watching football and feeling happy about the good life we're living. Despite the trouble our industry has seen over the past few years, if you look closely enough you'll see plenty of things to be thankful for. Most of them, it turns out, are second helpings of things we have enjoyed in the past and that many were worried we would never see again. Need some examples?
The refi boom of 4Q 2013 was certainly another trip to the table. More feeding the mortgage beast with refinances, when really it's the purchases that will sustain us. We'll all have to be leaner in the future, but the gluttony is continuing for at least one more serving. The real risk there is that gorging too much on easy refis creates bloated companies, where the cost per loan is way too high, and creates pain when volume drops.
Our data show that in the first half of 2014, the cost of a retail origination went up by over 80 basis points, while the revenue dropped over 25 basis points. Taken together, that's a 100 basis point swing in profitability. Ouch!
Of course, many lenders turned the tables in the second half of the year, getting that welcome second (or third or fourth) helping of refinances to satiate themselves. That high cost partially came from fixed costs that were too high, and too few loans running through the factory. So, it's sort of like making way too much food for not enough customers at the table. And the cost per unit goes through the roof.
A lot of companies seem to act like the only way to weather the lean times is by constantly recruiting new loan originators. The challenge with this approach is that too often you are just hiring away the spoiled leftovers. In fact, our data show that only 8% of the top-producing loan officers leave their companies each year, while over 40% of the bottom producers leave in a given year. So, rather than getting a fresh plate of origination capability, you are most likely getting someone else's leftovers. Too many of these leftovers will not just put you to sleep; they may render your origination capabilities comatose.
Another way to be successful is to commit to a more efficient and automated process for the consumer. Of course, that means spending money and ensuring you get a return on that investment. So, I am thankful for the technology innovators who help us reinvent our industry and the lenders who keep coming back for more despite the pain they have experienced here in the past. This is something we'll all see more clearly next year when our technology survey is complete.
One second helping we should never regret involves going back to share quality time with our friends and family...and even co-workers. Every passing day brings changes, making every encounter something different, if we're paying attention. The menu changes, as I'm learning in our newly empty nest, but it is still very satisfying.
This is true in our professional lives as well. Every business is about people serving people and that's especially true of ours. That's why I'm very pleased to see so many institutions taking customer service — and the measurement of customer satisfaction — so seriously. It's not just the way we're being judged by our regulators; it's the way we build our businesses.
I'm also thankful for all of you. Those of you who care enough to reach out to me, find me on LinkedIn, post on the blog, and engage in the conversation are very special to me. Without doubt, these interactions are what keep me coming back for additional helpings of drafting, rewriting, editing and finally delivering these columns. And if you think these food and holiday analogies seem a little forced, I challenge you to come up with better Thanksgiving food analogies the day before a holiday. Meanwhile, I will be changing into loose fitting pants, and get started on the cooking. Happy Holidays!
Garth Graham is a partner with Stratmor Group and has over 25 years of mortgage experience.