The Future of Mortgage Banking

September 11, 2010 by · Leave a Comment

It has been an amazing opportunity to live and work in mortgage banking over the last 20 years.  But perhaps none of those years have been more exciting than the past two.  Some may choose a different adjective to describe it (many that are not fit for print), and that anyone with this notion is glutton for punishment.  I disagree!  Living in a time when major historical events are playing out around us on a daily basis is nothing less than thrilling.  Without question, there have been some tough days, weeks, months, and quarters.  But if you’re still in the game today, you’re tougher, wiser, and a bit more humble than just a few short years ago.  With all this change and uncertainty, I’m regularly asked by peers, employees, partners, and customers, “what will the future hold for mortgage banking?”  I think that picture is becoming clearer with each passing week. The future of private mortgage banking has some interesting times ahead.  Unfortunately, the wild-ride we’ve been on over the last several years is far from being over.  The future will include some unknowns, some inevitables, some exciting opportunities, and certainly some unwanted changes that every mortgage banker will simply need to accept.

“That which is escaped now, is pain to come.” -  Proverbs

Perhaps this quote from the book of Proverbs has greater meaning for you having experienced the last several years in mortgage banking.  I think it fair to say that, for mortgage bankers, the last two years has brought more change than the two decades prior to it.  Most of this change (many would call it “pain”) has been forced upon us in response to businesses within our industry who temporarily escaped the consequences of failed products and flawed strategies.  One example of this flawed strategy is the over reliance by many in recent years on statistical algorithms as a pure replacement for case-by-case, experiential-based judgment.  Flawed strategies like these have left us to adapt to a new, increasingly regulated marketplace spawned in response to a perceived need to prevent the consequences of these strategies to our industry, and their ripple effect upon the overall economy.  In this new marketplace we’re left with two choices:  1) make opportunities to create a better business out of the challenges of our new marketplace, or 2) be consumed by those challenges.The opportunity available to any company that desires it lies in the acknowledgement of a new marketplace, and its willingness to lead the charge in transforming their business accordingly.  Those organizations that do it will own future market share.  In reading the tea leaves, the overwhelming consensus is that there will be potentially fewer overall mortgages written, more regulation, fewer secondary channel options, and a lot of people throwing in the proverbial towel.  The end game for those that remain will be who gets what’s left?  The smart leaders and companies that invest in renovations and technology to drive productivity and quality in response to the margin pressures from a heightened regulatory environment will succeed in creating a competitive advantage that drives both revenues and profits.No forecast of the future is complete without considering the size and scope of the overall market for the foreseeable future.  Currently, the market is running at about $1.2 trillion.  This is considerably smaller than what has been the market size over the last half decade.  If you’ve only been in mortgage banking the last 5 years, the current decline feels even more pronounced.  In reality, a $1.2 or $1.5 trillion dollar market is respectable and reflective of a normal market expected for the foreseeable future.  The industry may experience occasional refinance tail winds (like that experienced currently – and could enjoy going into 2011), but these have been artificially created by macro economic policy, and not contributable to market-size sustainability.  There are many who might argue that we are at the bottom of cycle that has to go up.  After all, what goes down must go back up, right? Unfortunately, this is not always how it plays out.  When a trend goes down, it can stay down, or go further down!  I believe we are seeing the market at its best altitude for the time being, with a number of incidences that can occur that could potentially result in a loss of altitude. Consider a few questions that may help you gauge for yourself whether our market will be growing, shrinking, or maintaining.  Let’s consider the profile of the homebuyer of the future.

  • Will it be the homeowner that is currently at a 4% interest rate that would need to accept 7% + on the new upgraded home?
  • Will it be the first time home buyer that just got out of college who watched their parents or family friends painstakingly lose their home to foreclosure in years past?
  • Will mom and dad dish out advice that home buying is as easy and natural as waking up in the morning?
  • Will down payments be low and or simple to come by?
  • Will credit return to a relaxed model any time in the next decade plus?
  • Will affordability continue to miraculously improve?
  • Is our population expanding at such a pace that it will naturally create demand?

If you feel any of the above questions come with an answer that potentially increases the size of the mortgage market, I implore you to do the research and get the facts.  The evidence suggests that our industry is still contracting and will continue down that path for some time. The prudent question then for any mortgage banker considering the future is, “what is the best way to thrive in a flattening, or possibly contracting market?”  My answer is, just find a way to stay in the game.  The good news is that the very challenges inherent to mortgage banking’s future represent opportunities for great success for the right kind of company.  That company is one which has the ability to work within shrinking money supply channels by securitizing its own paper, building scale through volume growth, capturing efficiencies, and developing excellent banking relationships within all secondary market channels.  These organizations will have a massive leg up on the competition, and will ultimately enjoy strong gains in market-share.  Productivity and automation built into the lending manufacturing process is an imperative not only for the sake of saving margin, but also for complying with the new doctrine deployed by the Federal Reserve and CFPA enforcement officials.  And, I don’t need to tell you that these entities have BIG teeth and certainly mean business!  The new rules regarding Loan Officer Compensation are the latest example of the changing regulatory environment, and its impact on the economic engine of every mortgage banker.  This is an enormous change that affects every aspect of our business.  I find it interesting to hear some of my colleagues still commiserating over the new rulings.  That should already be worked out in your minds.  If you understand the true meaning of this legislation, your companies should work just fine creating and deploying the new systems and structures required to support it.  Don’t waste another minute on complaining about realities that are here to stay.  Start investing now in the growth and expansion of your business.  Renovate every aspect of your company to ensure that it fits in the new world – the Dodd Frank Era.  If you are waiting around to see how things will shake out, wake up!  These changes are here to stay.  If you think you can fly under the radar by not adopting, or only partially adopting, the realities of the new mortgage marketplace, I implore you to rethink that strategy. There is no question in my mind that the future of mortgage banking is filled with excitement and opportunity for those that know how to execute and build a platform designed for the future.  I would venture to forecast with almost certainty that our market will shrink, there will be fewer players in the game, and market-share will be ultimately shared by fewer overall companies. This will not be great news for the unprepared that will be the next victim of our changing landscape.  And, on an unrelated note, it’s probably not going to be a great thing for the American consumer.  But that is a question for a different article.  If this description of the future seems overwhelming and scary, there is no time like the present to acknowledge the realities and change your mindset from fear to determination.  Otherwise, you may be the next victim of a changing marketplace!  I congratulate you for being a member of what is rapidly becoming an exclusive club!

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Where I Stand To Benefit Is In Tandem With All Citizens of Our Great Nation

September 24, 2008 by · 2 Comments

I have had a number of friends, colleagues and critics make the comment; “Dave, it’s obvious why you want the recent proposed bail-out by the Fed and Treasury to take place – you are the CEO of a national mortgage lending platform”. Such a simplistic assessment of my position in the current financial markets is troubling and I truly believe that we should educate ourselves on the markets and more specifically the multi-trillion dollar global money-supply-chain that makes up the whole of the mortgage lending and financial industry.

I would respectfully ask my readers to allow me to spend a little time on this topic to point out and defend the company I manage, PRMI, and the amazing people that it employs.

First and foremost, PRMI will only stand to benefit indirectly from the proposed 700 billion dollar government mortgage asset bail-out as all Americans will, if Congress can accomplish this much needed action. Furthermore, PRMI is, and always will be, a Retail Mortgage Platform – not a Wall Street Wholesale Platform making and designing risky mortgage securities. PRMI chose to abandon Sub-Prime lending and banking two and a half years prior to the collapse of this product line (over three and a half years ago). Even when our organization did provide such products, PRMI did so following the beliefs of two chief disciplines. First, regardless of relaxed market guidelines, PRMI did, in fact, properly underwrite and deployed “best lending practices” relating to the decision making of all approved and completed loans. Second, PRMI always maintained, at that time, a very small volume budget for said products, which fell below 10% of our overall lending volume.

PRMI simply read the writing on the wall. We felt that the product did not fit our estimation of responsible lending practices and we ultimately chose to abandon the product on a lending basis as it became way too aggressive. Our business has always been predominately focused on “A paper” lending with a strong competency and practice in government and agency lending programs. At the time, it was very obvious to us that we simply needed to focus on our core business practices and competencies – Retail Prime Lending.

PRMI will not directly benefit from the proposed bail-out, as we do not have loans on our books to be sold into this new “government pool of money” that will ultimately be temporarily funded by the American tax payers. Being that PRMI has always followed proper lending practices, rules, guidelines, warrants and regulations of its oversight entities, including the Federal Housing Administration (FHA), Veteran’s Administration (VA), Fannie Mae, Freddie Mac, Gennie Mae and major mortgage investors (such as Citi, GMAC, SunTrust, Chase, Wells Fargo, etc.), a request will not be made to the government by any PRMI executive for any sort of aid or release of stuck mortgage assets. In addition, PRMI is made up of professional mortgage loan originators that have the ability to originate, process, approve, and fund mortgages utilizing our warehouse banking capabilities – then sell the “payment ready” mortgages into the Secondary Markets.We only choose certain product types and take certain lending risks when we consider its value proposition to our customers.

It is essential that Congress acts fast to adopt the proposals made by the Fed and the Treasury. This is not simply a bail-out that will result in an altruistic sacrifice by the great citizens of America with no return or trade in its mechanism; one that will only benefit Wall Street “fat cats”, banks and their CEOs, and special interest groups. The proposal is to utilize tax payer dollars to “un-clog the pipe”, stabilize the banking industry and ultimately allow money through lending to flow more freely to stabilize American households and businesses that are being choked off by the limited lending options available to them.

In addition, the proposal calls for the very banks that essentially benefit from the bail-out to suffer redemptions by diluting their stock equal to the “net-loss” recognized by the Treasury. In turn the Treasury will return the money to the American citizens after it succeeds in its effort to stabilize said banking platform. It is much more like a huge loan made by the public – and it is designed and intended to save the public.

We need to stop pointing fingers and act immediately! We are all in this together. Every single citizen of the United States of America has an interest in the stabilization of our economy, banking system, GDP and property asset values. A catastrophic meltdown in our financial systems can only result in massive unemployment and the one-two punch of deflation / inflation in all the wrong places.Every citizen in every class will be affected in numerous ways, from losing value in some areas of life and paying more for essentials.We’re at the “T in the road”, the blinker is signaling a “right hand turn”, but we now seem reluctant to accelerated into the turn. Fear and uncertainty are dangerous enemies that must be stomped out and we need to make the “right turn” – now.

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Fall 2008: Continuing to Make New Strides

August 29, 2008 by · Leave a Comment

Partners,

It’s hard to believe how fast this year has gone by thus far – the old adage says – “Time flies when you’re having fun!” I’m not sure it’s all been fun, but it has certainly been a wild ride!  My pride for PRMI and our partners seems to have no boundaries – growing each hour, day and month. We continue to make new strides and achievements in an otherwise insane mortgage lending environment.

I know of few mortgage company CEO’s that get to enjoy boasting an increase in volume of more than 25% (2007 to 2008). Yet myself and other executives frequently voice this fact about our amazing organization – and it truly is! We’ve done all the right things over the years – and now we are enjoying the fruits of our responsible-business model and unwillingness to chase the “easy bucks”.  Our business partners have stuck with us over the last decade, have trusted in us, and believed that this organization has something special. This collaborative effort and desire for PRMI to be “one of the greats” is apparent in everything we do – every single day.

As challenges arise, undoubtedly opportunity follows. I believe that one of the major successes of PRMI is our ability to keep a 360 degree view of the entire industry – to witness opportunity and not get stuck in the quagmire of the daily grind. Despite these being the most challenging times in the mortgage-lending industry, the great people of this company have never abandoned their core business concepts and beliefs, while keeping a sharp eye on what we want to achieve in the future. The past – well, I would simply say, learn from it and move on – it’s good for little more than casual reminiscing.

I truly believe that as new challenges arise, new and exciting opportunities will also present themselves in this ever-changing lending environment. The fabulous people of this organization have proven that they clearly have the skills and dedication to succeed and we will ultimately attain our collaborative goals. I myself am excited for the future and the abundant opportunities that lay ahead. I want to personally thank every employee of PRMI for your trust in me, your patience, and your desire for this organization to achieve greatness. Even after all of the rollercoaster rides – highs and lows – headaches and smiles – I cannot think of a business that I would rather be a part of than mortgage banking – and more specifically PRMI. There are very few things that provide me more pleasure than being the CEO of PRMI and witnessing the evolution and maturing of this organization. Thank you for your contributions and for looking out for this special oasis we all respectfully call home.

Sincerely,

Dave Zitting

CEO
PRMI

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A Note of Great Appreciation

April 1, 2008 by · 1 Comment

Talk about burning the candle at both ends—it’s now the end of March and Primary Residential Mortgage, Inc. (PRMI) is breaking records in applications, funding, and lock registration numbers for a single month. What a busy time!

Without a doubt, PRMI would not be where it’s at today without each and every team member. The dedicated professionals of this organization are what make us so great! As Jim Collins states in his book Good to Great, “It’s not people that make a company great—it’s great people that make a company great!” I assure you the men and women that guide this company forward on a daily basis are nothing less than “Great.” In fact, I would have to say that they are truly amazing!

We often host potential new Branch Partners, Division Partners, and Affiliated Business Partners, and at the end of each Discovery Day we consistently hear the same question from our potential partners: “Your people are so enthusiastic for this business, but more specifically, their job. How do you do it?” My standard reply is: “I don’t, in fact, do it—they do.”

Perhaps it’s the absence of micro-management, the trust that we show in our people. But one thing is certain, PRMI’s employees do feel empowered by what they accomplish and put a great deal of pride in their job and responsibilities. It is a privilege to lead and work with such a great group of people—they make my job much easier!

I would like to thank PRMI’s Corporate Management Team for their dedication, effort, and desire to produce positive results and aid in the growth of this great organization. I would also like to request that each manager pass on this gratification onto their teams—they are equally responsible for the recent achievements that are evident within PRMI.

Colleen Fisher – Senior Operations Manager
AJ Swope – VP Secondary Marketing
Carla Wallentine – Compliance and Licensing Director
Natalie Cheung – Licensing Manager
Scott Donaldson – Chief Information Officer
Jim Crawford – VP Market Alliance
Tom George – Executive VP
Charlie Brown – VP Business Development
Kori Seely – VP Quality Control
Ruth Green – VP Business Relations
Felipe Pacheco – Business Development Manager
Michael Hamilton – Marketing Director
Rob Zawrotny – Public Relations Manager
Matt Maruri – Document Control Manager
Ben Jacobsen – Accounting Manager
Steve Chapman – Chief Financial Officer
Jessica Cordova – Escrow Manager
Kathy Meadows – Senior Underwriting Manager
Sarah Hare – Purchasing Manager
Leo McIsaac – VP Human Resources
Carla Burton – Warehousing/Funding Manager

There are simply not enough words or time to fully express my gratitude to all of the amazing PRMI team members. I sincerely thank you for your great interest and respect for our set goals and your desire to continue our pursuit of excellence. The goals that we achieve together will certainly ensure that the products and services we provide to our respected customers will help them achieve their goals and dreams!

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A Day of Family, Friends, and Food for Thought

March 26, 2008 by · 1 Comment

What a Sunday. Walking down the stairs with our two beautiful babies in tow, tired eyes popping at the candy and colored eggs scattered down every other step; attending mass with the wife and kids; driving back home with the sunroof open—the sun is bright and invitingly warm after a very long and cold winter. Yes, summer is on the horizon.

Friends are now scattered around the house. I’m alone in the kitchen making my famous lamb-chop dinner. People are downstairs watching “I Am Legend,” starring Will Smith, and the kids are playing with their cousins. Lots of fun sounds and laughter in the house today. I should have at least two hours of cooking, sipping Henriot Rose Champagne, watching Bloomberg, and surfing the web—love it!

Interesting times we live in. Bush is diligently trying to improve his chances of “leaving a positive legacy,” at least the one “he” would like to leave. What went wrong? It wasn’t all Rumsfeld’s fault Jr., although putting him in that position was clearly a mistake. Is that really still up for debate (or allowed to be)? Where was Colin Powell? Is our country really going to stop listening to the men of ability and men of achievement?! Please don’t allow the Democrats to nationalize mortgage banking—or anything for that matter! Oops, did I say “nationalize”? What’s the difference? Has anyone really taken time to look at some of the suggested legislation? Capitalism and free-markets cannot be fractional; they can only be what they are for them to sustain life.

The lamb is looking great. This is going to be one of the good ones; it’s really coming together well. My two year old son, Jett, brings me his new Easter Pez dispenser with a new block of candy to install. He’s so smart! Time to make the Roma, cucumber, Kalamata olive, champagne, cilantro, and cucumber salad—the last step to a perfect four course. This is going to be amazing!

There is an economist for Bank of America on Bloomberg predicting that the dollar has not stopped its continued down-ward spiral, and that the recent improvement was simply positioning for the Easter weekend. Really? Sorry, I don’t buy it. What if the dollar did gain strength substantially in the coming months? What if gold and other commodities lost ground? Well, the Fed sure would be breathing a sigh of relief due to the fact that they are getting ready for rates to plummet. The future recession is laughing in our general direction with the rude statement—”resistance is futile!”

A fun question is “what if 30 year fixed mortgage rates dropped under 5%?” Is this a prediction? (Only if it actually happens!) But “happening” I think is a real possibility—the stars are lining up my friends. There will be a few mortgages to do if that does happen, and there are, for sure, a few less companies to pick up the massive increase in business.

Multi-tasking can be a form of entertainment on its own. Cooking, watching the news—I’ve even got the laptop open, and I’m reading up on the ideas of “The Long Business Cycle.” Check out http://www.kwaves.com/kond_overview.htm.

That Kondratieff fellow may actually have something here, or at least his theories and ideas sure are going to become a lot more popular. But “when” (or when will the season change) is the biggy. If the rates do fall and we see a temporary ability to control, and possibly reduce inflation, well, “they” will all certainly think that this “Goldilocks Economy” is here to stay. But that is only “thinking in the moment” my friends. You bet I’ll take another two to three years of, blow your mind, low interest rates! I should because it’s the last time I will see it for a long while after the season is over, and I am a Mortgage Banker.

The lamb just came off the grill, my beautiful wife and our friends just came upstairs from finishing their movie, “I Am Legend”—really strange looks on their faces. I’ve gotta watch that tonight when the kids are in bed. Plates are going down: lots of amazing smells, laughs, and a new bottle of my favorite cab awaits—dig in!

Dishes are done, thanks honey—and mom. Family and friends are heading home; giving the kids their baths; love reading the bedtime stories! Easter cookies are calling my name—need a snack for the movie. House is quiet, heading to the theater. My wife makes the cookies every year, and they are amazing!

The movie is over—I now understand why they had that look on their faces—good grief! I, personally, will take an era of low-level stagflation, possibly coming after the next two to three years, over that scenario any day! That was a great day—can’t wait for tomorrow—headed off to bed…

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Happy Holidays

December 19, 2007 by · Leave a Comment

I wanted to take a minute to send out a Happy Holidays to all of my friends and colleagues nationwide. I have so many things to be thankful for this year, and I owe that to the amazing friendships and partnerships that I have had the pleasure of being a part of. I want you all to know that I never take my life or any aspect of it for granted, and I truly believe that partners and friends are the most important ingredient to my success.

2007 has been challenging and taxing in many ways for so many professionals in the mortgage industry. I congratulate those that “did it right” and that are in business today for their wise decisions and responsible lending practices. 2008 promises to be a year of great opportunities and challenges—change being at the very top of the list.

I recommend that everyone in the industry dust off their copy of “Who Moved My Cheese” by Dr. Spencer Johnson. An absolute must-read for anyone motivated to take part in the redistribution of market share rapidly consolidating day-by-day within our industry. These are exciting times that will no doubt test the best-of-the-best. I, myself, have fueled the tanks, and I’m getting ready to make my mark on what I believe will be a “new deal” going into the next decade of mortgage banking. I am excited for the opportunities and challenges and hope that new alliances and friendships will be forged in the process.

Thank you and have a safe Holiday season!

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Who’s the guy behind the desk?

November 15, 2007 by · 5 Comments

I would like to share a little bit about myself in my first post. This is a great place to start due to the simple fact that what I am attempting to achieve is a more “personal approach.” I want you to know what “I think”-not what would be “presented in a memo.”

My goal is to provide open and honest information relating to every aspect of my career. I don’t think for a minute that my opinion is necessarily the “right one”-collaborative intelligence is the only way to achieve true understanding. I hope that the information I provide will enhance my sphere of influence’s understanding of my beliefs, passions, and directions I take as a leader.

I believe this blog will be a powerful tool so that people within the PRMI organization, investor conduits, banks, people in the industry in general, and other important relationships in my life will have a better understanding of the direction I chose to take or the opinion I may have about any number of subjects.

If you were to ask me: Where do you see yourself in your personal life?

I love it! I can’t get enough! I only wish I could slow down the clock when spending time with my wife, Tracy, and our two kids, Rae and Jett, each night or weekends-it really is the best part of my life. I love the times I have with friends-or “down time” with Tracy. I truly believe that I know how to have a great time and take full advantages of any and all resources to emphasize “play times.” Watching my kids grow is truly the most amazing thing I have ever experienced. My time spent with friends and recreation is accomplished with fervor-always looking for an opportunity to create an unforgettable memory!

If you were to ask me: Where do you see yourself in your career?

Again, love it and can’t get enough! I feel as if I’ve built a great rocket ship, set it on the launch pad, we’ve lit the engines-and now we are ready to take it to the moon! That is the best analogy I could provide to best describe PRMI and my career. I am extremely passionate about my work. I try very hard to improve my skills as the CEO of PRMI and as a businessman and salesman. I hope that my industry and the people I work with in my business community see me as a fair and honest professional. I believe in those qualities and feel that I naturally look to those values when leading my company. I believe I have attracted those type of people into the PRMI organization and that is a major factor to our success over the last 9 years +.

Moving forward:

This blog will obviously be focused on my career and topics (new and old) relating to mortgage lending. However, I will certainly share some of my personal life-this is an outlet to share opinion and insights on any aspect of my life.

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