lykken on leadership
Powerful pattern #5 continued from page 40
heavily involved in wholesale lending. Many independent mortgage bankers have been forced out of the wholesale lending business because they lacked the capital to keep the necessary approvals that would allow them to continue in wholesale lending. Capital/cash is king!
Powerful pattern #2
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The U.S. government filed a $1 billion lawsuit in May of this year against Deutsche Bank. It is very probable, if not absolutely certain, that, as a result of this lawsuit, many large institutions that own or have an interest in a mortgage lending operation will divest themselves of that operation one way or the other, especially if mortgage lending is not their core business. Simply put, the risk of being embroiled in a $1 billion lawsuit with the U.S. government is not worth any return they could otherwise earn from an investment in a mortgage lending platform. I cannot stress enough what a significant development this is! I have been predicting since the announcement of this lawsuit in early May of this year, that it will result a major seismic shift of “who’s in” and “who’s out” of the mortgage business. The ramifications are huge and farreaching! The most significant is the likely resurgence of well-capitalized independent mortgage bankers.
New non-regulated entities with very deep pockets and a previous investment history in mortgage lending are entering or re-entering the markets. Wilbur Ross’ investment in the old American Home platform and Lewis Ranieri, via his Shellpoint Partners LLC
joint venture, made a recent acquisition of New Penn Financial. Our firm is active in the mergers and acquisition business, and we have been contacted by a number of funds about making an investment in mortgage companies. This should be an encouraging sign to everyone reading this article.
Powerful pattern #4 I am going to approach this fourth point with what is a rhetorical question for me: Organizationally speaking … can large financial institutions more cost-effectively originate loans than a mortgage brokerage company can? And I stress the words “organizationally speaking. After more than 37 years in this industry working all aspects of loan originations from almost every position and angle, I would have to say the answer is unequivocally “No!” Mortgage brokers are, by far, the most highly-effective and cost-efficient origination “machine” this industry has ever seen. Another way to say this is that mortgage brokers are really good at “sales” and have a track record of originating loans with a very low cost of operations. This is a huge and very important point that will drive the final outcome of this whole topic, regardless of what side of the issue you may find yourself on. As we all are painfully aware, there’s a lot more to this discussion than just the cost of originations, which brings me to the next point of clarity.
AUGUST 2011
MASSACHUSETTS MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
Powerful pattern #3
“Sadly, we have many such leaders in this country, and I’d suggest in this industry, who are leading with a failed strategy for a sustainable and lasting financial recovery.”
www.windvestcorp.com
Again, I am going to approach this next point with another rhetorical question: Generally speaking, do mortgage brokerage firms have the same degree of concern for quality and risk management as does a larger financial institution? Again, I would have to say the answer is unequivocally “No!” Mortgage brokerage operations and many smaller thinly-capitalized mortgage banking companies do not have the same appreciation for loan quality and risk management as does a large financial institution.
Powerful pattern #6 We are experiencing a significant attrition in the number of licensed loan originators across the country. Some states, like Texas, Florida, Michigan and others, are reporting an exodus of as many as 85 percent of all previously-licensed LOs. This should be encouraging to those who have made the decision to hang in there and stay in the business, but also sets up for another not-so-obvious consequence. I announced this consequence at last year’s Mortgage Bankers Association Annual Convention in Atlanta. It is this … I see the very real possibility that we may be facing, as an industry, a capacity crisis. By that, I mean that there will not be a sufficient number of licensed LOs to take all of the applications once the real estate market begins a sustainable recovery. There are many more “powerful patterns” I could write about that exist and even more yet to come. The purpose of this whole discussion as it relates to wholesale was to demonstrate how you can achieve clarity as you set your course to be a leader. I know some of you are dying to ask me my opinion on the future of wholesale. Let me just say that I personally believe we will see a resurrec-
tion of wholesale, but not as it was in the past. I am well aware of the fact this is a fluid topic and that many have predicted that mortgage brokers are being (or already have been) regulated out of business. Some even refer to them as “The Walking Dead” … implying it is a dead business strategy, only existing on life support because of the desperate need for loan volumes and that is the channel that has worked in the past, so they are going to ride it to the end. Some, on the other hand, hold on to the belief that there is a place for the mortgage broker and that we will see a miraculous “Resurrection of the Dead.” I am of the opinion that it will be more of a caterpillar to butterfly type of metamorphosis, rather than a resurrection of the way it was. I started this article talking about the benefits of a vacation and the importance of taking time to slow down and kick back, and from this more relaxed place, sort out the issues that may be confusing and unclear. It may not be coincidence that this article is being published in the month of August at the height of the summer vacation season. Recognize that this is an excellent time to kick back in a more relaxed state, and get clarity and focus on the direction of the industry. If you struggle with getting clarity, I would suggest you consider sitting down and to start writing, not with a computer, but with a pen and paper. Something happens when you force yourself to sit down and handwrite things out on paper. It forces us to slow down and reconnect with that inner voice I believe each of us has, and that if you keep at it, that voice will bring clarity and make you a more effective leader. David Lykken is president of mortgage strategies and managing partner with Mortgage Banking Solutions. He has more than 35 years of industry experience and has garnered a national reputation, and has become a frequent guest on FOX Business News with Neil Cavuto, Stuart Varney, Liz Claman and Dave Asman with additional guest appearances on the CBS Evening News, Bloomberg TV and radio. He may be reached by phone at (512) 977-9900, ext. 10, or e-mail dlykken@mortgagebankingsolutions.com or dlykken@mbs-team.com.
To listen to author David Lykken’s online radio show, “Lykken on Lending,” log on to www.lykkenonlending.com.