Case Study: Optimizing Mortgage Operations and the World of Mortgage M&A

What should IMBs look for during due-diligence process while acquiring another lender? What makes a streamlined operating model, how do you assimilate an acquisition, what drives adoption of new tools, technology, process?


Key Learning Objectives:

  • Effective Due Diligence in Mortgage Lender Acquisition
  • Building a Streamlined Mortgage Operating Model through Assimilation
  • Driving Adoption of New Tools, Technology, Processes, and Cultivating a Cohesive Culture.
Transcription:

Abhinav Asthana (00:06):

Hi, my name is Abhinav Asthana. I am the Chief Product Officer and Growth Leader at Tavant. Tavant is a Technology Solutions and Product Company Headquartered in Santa Clara, California. We have been in business between three years. We served the financial services industry specifically in the mortgage space, but outside that we also work with a diverse set of industries like media and entertainment. We work with the likes of Disney Plus, we work with Daimler. We work with Land O'Lakes, booking.com. But today we are going to stay focused on mortgages. With me here today I have Erin Langevin Operations at Guild. Erin, I hear that you had an interesting story about getting at Guild, so why don't you share your story with us?

Erin Langevin (00:49):

I'd love to. It is a world of M&A right now, and in 2008 it was a great time to buy a mortgage company and Guild Mortgage had their first acquisition. I was with Liberty Financial Group and our company was acquired in 2008. So I came to Guild as an Operations Leader and what really set the tone for the culture at Guild and really what we would perform ongoing with all of the acquisitions that we've had is they set the tone for listening. So we went in to see their systems and their process and just to assess anything that might be an issue. And a few of my counterparts were there and after a couple of days I left with five pages of legal pad notes on all the things that they had to change because this is never going to work. And we left on a Thursday and I'll have that Monday morning. I was able to scratch off almost two full pages of items because they had gone back, changed policy, procedure, changed programming and systems, and really made effective change that was going to make the integration so much easier. So that set the tone for how to acquire a company.

Abhinav Asthana (02:07):

That's incredible. And just a little bit of history. Gill has been around for 40 years, but it was only in 2060 years 60,62.

Erin Langevin (02:16):

62.

Abhinav Asthana (02:18):

Actually, yes. It was after 40 years of the proprietor running the company when there was a management buyout in 2007 that set the stage for what Gill is today. So with that in mind, the last 12 months have been hyperactive. With all the acquisitions that you've made, what is it that you'd like to share from those acquisitions that you've made with your peers? COOs and heads of operations here in the room?

Erin Langevin (02:47):

Thank you. There's a lot of M&A activity right now, not only with lenders but also with vendors. And so the advice I share really is applicable to any market that you're in. Think as a company who would be selling for heads of operations and other roles as well is really you've got to know some details about your business because you won't be able to bring in department level managers until very close to the onboarding or announcement date. So as a head of operations, we need to spend a lot of time doing discovery on every piece of your workflow process, and that's going to be 15, 25 hours of meetings really digging into the details of how you do what you do. And if you don't have your SMEs and department managers available, there's going to be some gaps. So you have to know your flow is what I would say.

(03:41)

And then number two is a culture of positivity. It's really important that people are prepared for change management and getting people into a positive mindset before going through an acquisition is critical. I think a lot of people that are in a company that sells think, what did I do wrong? What did we do wrong? As a company, morale is down. And so really as a leader, you've got to set the frame as to why this is a positive and how we've built a successful organization that could be sold and the longevity that we're going to have together minimizing change and reducing change before an acquisition is important so that people don't get change fatigue. And then on the buying side, you have to dedicate resources. Do not underestimate the amount of work it will take. And I think 60 days prior and 60 days after an acquisition date, there's going to be a lot of heavy lifting and you're going to need your resources to be dedicated to the projects. When you onboard a company, when you have organic growth, which we've had a lot of organic growth too, you're hiring into an existing group and region and the local managers can help support and integrate those team members. But when you're acquiring a whole unit, they're not going into something existing. So you've got to carve out personnel to help support them through the hard parts of the learning curve. So just be prepared with those resources for an ongoing period of time.

Abhinav Asthana (05:14):

So that's interesting, right, and you touched upon people, you touched upon culture, but when you think about from a technology perspective, what is important when you're preparing from a technology perspective in an acquisition process, especially, how do you see adoption of technology as well as what does it mean from assimilating a new entity into your organization?

Erin Langevin (05:41):

When a company is preparing to sell, this is probably not what any of my tech vendor friends want to hear in the room, but when a company's going to sell, really a big part of the value proposition is what the purchasing company has to offer as a platform. And so a lot of the tech stack that that company had is going to go away. There is an expectation that you will gain efficiencies and synergies by adopting the new technology of the existing company and getting your workflows to meld together for the purchasing company. Really it's an opportunity for an exceptional feedback loop because the folks coming on board are going to have done many things better than you. And so it's an opportunity to listen and learn and improve not only your processes, but improve your technology. We always dedicate programming resources for every acquisition that the incoming company, when they give us ideas, these are our pain points, why don't you have a button for this?

(06:44)

How come it doesn't calculate that for me? I have programming resources on standby ready for those projects and we just write them up as fast as we can and get them developed. And it helps build trust with the incoming team to see that technology expanding. So for companies who are thinking about selling, I would say there's two things to really keep in mind. Number one is the portability of your data. So as a lender, we're not only going to be moving loans, but also all of the contacts, realtors, title companies, appraisers documents, are you able to get that data and that information out of your systems in a way that can be ingested and can it be done in bulk? Number two is creating optionality in your contracts with vendors. One of our acquisitions did not have some optionality with one of their vendors and really had to pay multiple hundreds of thousands to get out of that contract. So when you're looking at going into a contract, making sure that you've got optionality, that the minimums aren't going to hamstring you down the road and that you'll be able to have more flexibility.

Abhinav Asthana (07:53):

The last one is an incredible advice because even outside of mortgage M&A, if you think about technology acquisition, like companies buying tech companies, they look at what kind of liability am I going to take on my books by virtue of this whole acquisition? So that's great advice in terms of thinking about if you're looking to sell in the near future, what kind of contracts do you have in place that don't hamster you down and then help you support your acquisition goals? So technology is one aspect, but culture and people that I think is a bigger aspect in this whole acquisition process. How have you at Gill leveraged culture to your advantage in optimizing the operations and efficiencies in the acquisition world?

Erin Langevin (08:42):

It goes back to that stage that was set when I first came, and two of our core values are collaboration and learning, and that takes being an active listener and valuing our team members' input. So we really have to be engaged and present intentionally listening to the feedback that they're giving us. If we don't understand it digging deeper until we really get to the root of it so that we can make effective change. For larger initiatives, we leverage an ambassador program, so we identify resources who can help with the specific thing, whether this is integrating a technology or onboarding an acquisition. We take team members who are individual contributors, processors, underwriters, closers, loan officers, and we gauge them early in the process to help us come up with a solution. They help design it and then they see it during the development phase, give feedback, they may do UAT for us, they lead a pilot, and then once we go live and release, they are the SMEs that others can come to. And they also talk about it a lot in our coaching programs to help influence people to adopt. So ambassador programs are critical. Not only are they effective for you is that you get that great critical analysis and feedback so that adoption will go faster and your ROI comes faster.

(10:06)

But for your employees, they get to feel a deeper level of engagement and fulfillment in their job and they end up avoiding burnout and being more engaged and fulfilled. So it's a win-win.

Abhinav Asthana (10:20):

We talked about both people and technology and Gail as a company and you as a leader, you continue to invest in both people and technology, but in the current market and then with the current market conditions, how have they informed your decisions and choices around investing in people and technology?

Erin Langevin (10:39):

A lot. A lot. I think, and I hope all of us are very affected by market changes in the way that we make decisions or in what we're thinking about with our decisions right now. Let's start on the people side. At Guild, our culture in operations is ops for sales. We don't do ops versus sales. We double down year and a half or more ago on ops helping sales and really owning the ball during our leg of the race. We own restructuring. We do everything that we can to figure out that deal without having to bring sales back into the loan. Not only that, but we really leverage data from Stratmor and also our JD powers feedback from the awards that we've won in those surveys to know what our customer wants in order to refer us business. And we doubled down on educating our processing, underwriting and closing teams as to what those KPIs are to increase our net promoter score and get more business. We all have to be rowing the boat together. And so that's what we're focused on from a people perspective. On a technology perspective, I think it's a short and a long-term, two sides of the coin, I'm sure everybody has done this. Look and see where can you save money today? What's going to give me ROI to the bottom line right now and save cold hard cash? And then a long-term strategic approach. We have to stay dedicated to our long-term projects for the success of our organization and long-term sustained growth.

Abhinav Asthana (12:17):

As a leader at Guild, you are also running strategy around operations, the people, the technology. What is your approach to selecting partners and technology or data providers, third party partners or even fulfillment partners for your business?

Erin Langevin (12:38):

Yeah, I think it starts with the offering, right? They have to have the expertise in the area and a roadmap which aligns with yours. But the second, very close second is longevity. And we've always looked to partner with companies that have longevity, that they have a great reputation in the space. They've been building on their technology for many years, and it's a mature solution that will help compliment us. The other piece is that they work in other verticals. So are they solely focused on mortgage or are they building other things? So for example, with Tavant, you built Disney Plus. That's pretty cool. I'm sure I'm not the only Mandalorian fan here. It's a really awesome app and I love what you've done there. And so we look to lever partners like that where you are building and innovating technology in other verticals that you can then come apply to us. So as soon as our POS acts like Disney Plus will be in great shape. I think the last thing is just flexibility in the solution. So the partner's going to bring the architecture of the software, but we need to be able to customize certain things to our workflow. And avon's been a great partner for us with that as well.

Abhinav Asthana (14:03):

And thank you for bringing us to the limelight. But I think it's also the partnership is both ways. And we have been extremely privileged to work with a partner like Guild. This is just interesting that all that we've talked about in the last 15 minutes is truly focused around the right kind of culture. And then as you grow as an organization with all of these acquisitions and also through organic growth, your regional footprint expands. You probably had 15 people running a region a couple of years ago. Now it's grown to like a hundred people running that region. So when you think about that growth, how do you keep your operations folks vested in the processes and technology that you offer to them? And then I know you talked about the ambassador program, but what other kind of formal programs you have in place to bring their inputs and feedback back into your business decisions that you make about the operations processes?

Erin Langevin (15:04):

Great question. It is tough out there right now. Morale is down and this market isn't changing in the foreseeable future that we all know of. So operations people feel that deeply and see it every day. And so I think two main ways, one of keeping them engaged. We have coaching for operations many years ago. We set a goal to be the most coached company in mortgage. And that's not only for sales, it's for operations too. So we've had ops coaching for many years. Every month we're coaching operations to motivate and inspire and practical and tactical things that they can do. And so keeping them engaged and learning and growing through that is important. And then for a formal feedback loop, we have an operations advisory board. And that advisory board is comprised of individual contributors, no managers allowed, no supervisors allowed. People who do the job day in and day out every day, they gather, create the ideas, and then they prioritize them of what they think are the most important of those ideas. Then our corporate team reviews and infinitives them, and then we make plans to execute.

(16:12)

We have advisory board sessions with them. So they serve a one year term and they meet twice a year in cross-functional groups. So our groups will be LO processing, sales, underwriting, closing, all in the same group, having discussions around those items that we prioritized to design the right solution come into agreement. We have every geographical area covered and included in those groups as well. So we make sure to take into consideration geographical nuances. And this goes back a bit to the advisory thing I was talking about earlier, is that involving your people in the conversation and the design to make sure that you're considering those nuances really help removes barriers to adoption proactively. So anyway, those are both invaluable tools to us that we'll keep doing long into the future.

Abhinav Asthana (17:05):

I think it's surely worked for you guys because one of the things that we have noticed in the industry over the last three quarters is you probably are one of the very few businesses that are profitable. You're making all these acquisitions, you're assimilating new businesses and companies and their culture into yours while staying profitable as a business in this market. What is that set of one or two key advices that you would want to provide to your fellow peers in terms of how they do this? You talked about processes and dedicating people, but are there other things that you'd want to share with buyers in this market and what they should be doing to not just acquire but then successfully manage the acquisition?

Erin Langevin (17:54):

Yes, yes. We have learned a thing or two. So in the last, since December, we've acquired nine companies, five of those JVs. So probably 2016 we made a decision company-wide that every department had to have an acquisition playbook. Some of us had them, some of us didn't, but it was a requirement to create a playbook. And there are thousands of tasks that need to take place in order to successfully acquire a company and integrate that company. And so making sure that you get a runbook, it doesn't matter if you use Excel, Smartsheets, whatever, we have a project management software we use now, just create one because it's a lot of work and a lot to keep track of. And then on that weedy task list, you do your project planning, no one things are due. And then once that acquisition is done, we literally just copy paste, start a new playbook and run the playbook again.

(18:52)

So really important to know what you're doing and keep track of all those tasks. So that's number one. And then number two is around change support, change management. The people, you can't underestimate the complexity of change management. You don't know how people are going to react when they're afraid, when they're under pressure, when everything that they knew just changed. We've had people come on board who said, I don't even feel like I know how to do a mortgage. And really all that changed was the software. So we have to reassure them, mortgage, you just have new tools, but these are people who have been at their companies a long time and they know everything about everything, and now they feel like they know nothing. And when someone is in that place through the change management cycle, they can get into a valley of despair is what we call it on the learning curve. What I would say is if you're a buying company, then one of the number one things you can do for your leadership team who will be leading their leaders, get them change management training, that they understand the psychology of change management and can help the incoming leaders lead their own people through that change.

Abhinav Asthana (20:07):

That's incredible. And I think that's great advice. Now, we talked a lot about mortgage companies and mortgage M&A, but I'm pretty sure there are tech companies here as well who'd want to pick your brain on or understand what advice would you have for them, because as I said at the beginning of this discussion, that the principles apply across the board. So if you shift gears and would want to provide an air langevin perspective to technology companies or anyone else out there who's looking to buy or sell, what would that advice be.

Erin Langevin (20:43):

Air langevin advice? This could go any either way. So what I'd say is, of course, an acquisition has to be aligned from a business model perspective. You have to make sure that it's going to be a win for both organizations, but the people are the most important part, the culture. If you don't have a culture fit, there is no amount of workflow optimization that is going to make it work. And when you're in the middle of a difficult onboarding, I mean, cherry Creek was a large organization, we're bringing over hundreds of people in the middle of a tough market. You have to be aligned culturally in order to make it through successfully and really retain those salespeople, which in this business is where it's at. So what I would say is process is important. People are more important. We have definitely left some deals on the table and walked away from companies because it wasn't a culture fit, and I'm very glad we did that. We've ended up with just amazing people that we've grown with over the years, and it's all about having great people on your team.

Abhinav Asthana (21:57):

Well, Erin, thank you so much for sharing all these thoughts and insights and advice with the audience and for the audience. Erin is here today, she's around. Feel free to stop by, talk to her, ask questions. But with that, it's a wrap.

Erin Langevin (22:11):

Thank you.