WE’RE HEARING
My comment was that in both cases, the various participants were choosing either to fight or take flight. In the mortgage industry it is showing up in significant M&A activity, while for the Miami Dolphins it is showing up in ugly headlines. So, here are some other perceptions on both.
Timing is everything in business, and also, it turns out, in writing columns for this publication. Last week, my headline about fight vs. flight was on the same page on National Mortgage News as the
There was a certain irony to this, as Nationstar has been a high flyer over the past few years but obviously was not interested in the wholesale channel with margins compressing and volumes dropping. In this example, they appear to have chosen to fight on their core business but flee from the channels that were eating capital and dragging down earnings. Expect more of these sorts of announcements.
From a broad market perspective, production volume has fallen at least 25%, on average, during the third quarter from the first half of 2013. Revenue is down even more than that, as lenders fight for share. And costs are pressuring the bottom line, as lenders must spread fewer loan units over their fixed costs, which are inherently difficult and slow to reduce.
However, the operative phrase here is “on average.” Not everyone is fleeing and some lenders are doing pretty well.
Stratmor had a very busy MBA convention, meeting individually with some 50 lenders plus conducting group sessions which included another 75.
This was a well-timed opportunity to gather live, fresh market intelligence at the individual lender level. What struck me was just how variable the key performance metrics are running from lender to lender. We are hearing from a few Stratmor clients who are anticipating up to 20% increases in 2013 volume over 2012 levels.
At the other end of the spectrum are lenders suffering 40% to 50% declines, which are quickly rendering them unprofitable. Averages tend to obscure how individualized this market has become.
In between these two extremes, we are observing lenders using a range of strategic responses, although the more successful retail lenders have several common characteristics.
One is they are approved with one or both of the agencies and as Ginnie Mae issuers. In this way, they have become proficient at selling directly to the agencies on a servicing retained basis, reducing their secondary marketing dependence on the aggregators. This gives them the ability to avoid credit overlays that cost them deals in a climate where it is tougher to get deals done, and they also score extra margin in a climate where every dollar counts.
Another common element shared by successful lenders is that they mostly implemented purchase initiatives before mortgage rates started rising. Before the competition had a chance to get intense, the successful lenders were already focused on recruiting efforts.
During the last half of 2012 and early 2013, this allowed them to generate enough incremental production volume to largely compensate for the market shrinkage. Successful lenders have a commitment to real sales management practices and have thereby sustained LO productivity, despite the reduction in refinance opportunities.
They have adopted a strategic approach to originator compensation plans and avoided "pick-a-pay" and other potentially noncompliant programs. In fact, when Stratmor conducted a session on how to create a
Many of these successful firms aggressively implemented organizational rightsizing relatively early in 2013. One interesting note from a midyear
And lastly, these companies demonstrated anticipatory leadership by preparing their organizations early for more challenging market conditions.
This is where any parallels to the Miami Dolphins end. The most recent press conferences and interviews with Dolphins leadership have clearly indicated a brain-dead response to what was, and is still, happening around them. In fact, Monday night as I watched the half-time interview with the Dolphins owner, I was concerned that he was going to nod off while talking about how concerned he was about building a culture of success for his team. Not an inspiring effort.
I’m glad to know that so many leaders in our industry were not also asleep at the wheel coming into this new market.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.
