Episode Transcript
[00:00:00] Speaker A: Hello and welcome to another episode of the Mic'd Up Show. We are getting closer and closer to a hundred straight weeks of live, which would make us the longest running live mortgage show that has consistently been on air. David Lickin, maybe, you know, we'll tip our hat off to him, anybody in the space. But outside of that, we've been able to bring many great guests and today is no different. So for all of those that are listening on Apple Spotify, we would love a like subscribe. A comment goes a long way, but what makes us unique is that you can come to our show every Thursday at 2:00pm Eastern and of course every.
[00:00:42] Speaker B: 11:00Am Pacific Time here in sunny San Diego.
[00:00:46] Speaker A: And we actually encourage and we post the comments which are typically questions for our guests. So we are trying to get some live interaction, some interaction, not just at the C level, which we have a lot of people like our guests today, but loan officers can come in and ask questions and we'll screen them a little bit. But we certainly try to get our guests to engage with the audience just like we want to engage with the audience. So with, with all that said, special guest today, Jim Clapp is a leader in the industry, not just today, but for a long time. When I first started going to Lenders one events with my mobile app, not knowing really anybody, it was very clear you could tell early on, you know, in that high level of leadership who was running mortgage companies and running them efficiently, running them professionally. It was Jim. And so I was always fortunate when I was able to get in front of him, even if it was a half an hour to talk to him every spring and winter. And I've been following him as he's led a couple mortgage companies and now he's on his next quest. So we, we caught him right in time as he's joined Assurance Financial. Jim, do you want to give a background for our listeners that don't know you? And also maybe initially, and we'll get much more into it, why you chose Assurance Financial, why, why everybody should be excited about this.
[00:02:13] Speaker C: Sure. So I, you know, like any of us that ended up in the workspace, I don't think any of us went to college or, you know, started out in life thinking I want to be a mortgage banker. And my path to this was through the commercial banking side, so went through a traditional credit training program and the first deal that I got dropped on my desk was a mortgage deal, which I knew nothing about because when you go through credit training, you learn about accounts receivable and inventory and Other things like that. And this had to do with, you know, mortgage warehousing, which was a foreign concept. Well, for better or for worse, I sort of became the mortgage warehouse guy. And so I had a 15 year career in mortgage warehouse banking and never envisioned leaving the commercial banking and hopping over the fence to become a mortgage banker. But fate has it, in 2009 when warehouse banks were running from the space, liquidity was draining faster than you could even watch it. And one of my clients said, hey, I'd like you to come over here and help us sort of arrange the financial side of the house. So I did that. In 2009, I left commercial banking, became a mortgage banker. And obviously it was a steep learning curve. I mean, when you're banking mortgage banks, you know enough to be dangerous, but once you get inside a mortgage bank, you sort of, you learn the dynamics and all that. So for 15 years, Starkey, which was ultimately Certainty Home lending, you know, we were a, a medium sized independent mortgage bank and then ultimately got partially acquired by Stearns and then ultimately acquired by Guaranteed Rates. So I've kind of had a front row seat to a lot of vantage points of this business as a commercial banker, as somebody running a small to medium sized mortgage bank, to sort of being inside some of the biggest mortgage banks in the country and Stearns and Guaranteed Rate.
And then when it came time to leave, I sort of looked for a shop that reminded me of, you know, the Certainty days back when we were a small independent. Because to me it's the most satisfying sort of dynamic in my experience is that, you know, you're nimble, it's easier to move the needle, you're not tied up with as much bureaucracy and things like that. It's just a, it's a, you know, you kind of get to see the fruits of your labor really quickly in a, in a small mortgage bank. And you know, you know, say what you will, the big, big shots have some advantages. But in my opinion, I think a lot of people have grown tired of the bureaucracy. I mean, look, loan officers want one thing and that's to get loans closed as fast, fast and as efficiently as possible without a lot of pulling out your hair. And I'd say that small to medium sized mortgage banks are more positioned to be able to deliver on that promise in this day and age. So that's kind of how I ended up at Assurance. And Assurance is a company that's been around for 20, 21 years, actually a lot of that, 20, 23 years, I guess. And so it's basically tried to help them sort of take that step up to the next level and that, that's, that's a fun environment when you're, you know, kind of on the offense, you're not playing defense. I think this market is, is very opportune time to go out and try to, to sort of grow. I mean if you're a small company and you're still alive in the space in 2024, going into 25, you've got, you've got sustained power. And so those of us that stuck around in the space and, and can survey the landscape, look at, look at the next three to five years as a, as a pretty good market notice predict interest rates. Right. But at some point this market's going to become unlocked. I mean there's just too much demand piling up. There's too many demographic things in place with millennials and all that that the mortgage space is going to be an attractive industry niche for quite some time, especially in growth.
[00:06:13] Speaker A: And we're going to talk today boutique versus big. We're going to talk today regional versus national signing bonus versus value prop.
Before we get there, there seems to be a lot of similarities post what we just went through in a mortgage industry of this boom during COVID to golden handcuffs. 80% of people are in a rate that doesn't make sense for them to do much time heals that we're getting now three years where they're, they're getting used to rates not coming back there. Life has moved on, they have debt now. They eventually going to have to make a move from a leadership standpoint. And just speaking to loan officers, you said the word satisfying. When you come out of one of those booms, I think you have a hangover of chasing money or chasing a lifestyle that you had as a loan officer. And getting back to that is not meaning pre financial crisis and getting back to Covid it just isn't going to happen because there you would need another Covid. What do you say to those loan officers and in you as a leader, how did you handle leadership post one of these big great booms and then going into a bust in changing the mindset from completely transaction money driven to getting back to what's a satisfying way of life?
[00:07:38] Speaker C: Well, I mean I think first of all you kind of had a thinning of the herd if you will and it was the part time loan officer to the professional mortgage banker. And you know we always look to recruit and employ professional mortgage bankers, not those that were jumping in because it was low Hanging fruit and easy money. And so I think the market kind of self corrects that pretty quickly in the cycle. You know, people that just had loans coming in the door because relatives and neighbors and all that, you know, read headlines and saw that you could get a mortgage for 3%, that's one thing. But it's the others that these people that spend their whole career cultivating referral partner relationships with builders, with financial planners, with realtors and all that, those people, you know, I think the good ones realize that that's never going to go away. I mean, just the industry will cycle up and down, rates will go up and down. But if you're a professional or baker that takes care in your craft, there's always going to be a market for you. I mean, that's the great thing about our industry is that everybody needs housing, you know, over their head. And you know, somewhere in the low 62% of them own a house. And so it's, it's a gigantic industry and it's only going to get bigger, you know, just because of population growth and demand. I mean, it's one of those businesses. It's kind of like the federal government up until the next administration where it was always an economic engine, right? There was always a new administration and all that. You know, just like, you know, businesses around college campuses. I mean, it's a perpetual, the supply, demand environment. Well, look, this is a gray market. So to your point of how do you navigate through the down cycle, I think it's that you coach those people that look, your business is still the same as it was last year or the year before. You got to keep doing all the blocking and tackling and all that. And you basically want to be with a company that's there in the fight with you versus one that's really sort of, you know, just going to slash and burn and do everything. I mean, it is a very fine line between cutting and maintaining fulfillment versus having a fiduciary duty to keep the piano online or whatever, keep the company in business and things like that. But I think as long as you've recruited, align yourself with good people, it's kind of self evident to those people. They understand that, look, you know, I like, you know, this person and that person, but I realize if I want my company to be in business, you know, you have to make tough decisions. And you know, we all say this. You know, we went through how many rounds of cuts over the last three years? Every mortgage company's done the same. You know, the first couple are not so hard because it was excess capacity and it was people that were new. But the third, the fourth, the fifth really got painful because everybody that was in those was good, were good workers and good employees. And so you just spent a lot of time sort of, you know, you know, aligning with those people and say, look, you know, this is for the good of the company, for the good of your origination business. We have to right size the company. And that's been painful. But I think the good ones, the lifers, get it. I mean, you know, if you've been originating mortgages for 15, 20 years, this is about the fifth or sixth cycle you've been through.
It's just that we went through such a prolonged cycle of low to modern interest rates. I mean, we probably cultivated a whole generation of originators that never even heard of a 6 or 7% mortgage. I mean, who, oh my gosh, that was just foreign concept to them. And this is kind of the walk uphill to school in the snow kind of old man thing. But you know, all of us on this probably had a 7 or 8% mortgage and thought it was a pretty good deal. So I think, I think we finally gotten through that. I think the public's got through that. Where now I think, you know, if you had a rate in the low sixes, people think, well, that's a pretty good rate. Well, three years ago people would have thought you're crazy. I mean, 6% rate sounded like predatory.
[00:11:46] Speaker B: So you've been through, I mean, all these, all the cycles. I mean, I mean when I first came into business, we were coming out of the SNL crisis, right? So this I've seen, I've seen the cycles and you've seen the cycles. And one of the things that really intrigues me about your history and where you're at right now is that if I was an originator and then became successful because of whatever reason, and then all of a sudden now I went from originator to team owner, basically potentially a P L owner, and then wanted to go from P L owner to multi branches. And that you actually have gravitated in leadership from looking at the accounting of how to run a mortgage origination shop and then getting and then merging and organ and then going from smaller to even bigger, a guaranteed rate. And so how does the originator, I'm going to go a little granular going back to that level. How does the originator look at your success right now and say, okay, you know what, he's obviously in a leadership space, been successful and for Me, I've been successful in originations, but now that I have some teams, I want to actually look at that, look at his model of thinking and now gravitate to how do I think as a business person versus a salesperson so that I can be just as success, as successful not only in trade and also in economics for growth, for my brand and for my branch, ultimately.
And so what, what goes into the thought of growth? The last four years have been an anomaly in the firing of things. But if you are successful and you are in consistent growth mode, then there's a mindset that comes along with that. How, how would you speak to an originator that wants to change from successful salesperson to business owner so that they can think of the economics behind it?
[00:13:41] Speaker C: Yeah, I mean it's obviously a lover of maturity. You know, it's kind of the, you step away for and look, you know, humans in general, it's like, what about me? What's in it for me? And you know, you sort of, I guess if you're going to make that pivot from single originator to building a team and all that, you're going to have to, number one, sacrifice some stuff, but you're going to have to sort of broaden your worldview from okay, you know, what, what could be for good for Jim Clapp as original may not be good for an entire team. You know, if I want to, you know, whatever, if I want to charge a higher fee set or I want to have higher margins and all that, well that's, that could be selfish for me. And you kind of have to take a broader worldview and I, I think that, you know, for all of us, you know, think about our 21 year old self to our current selves. The maturity level I think almost takes care of it for yourself. I mean it's, it's a natural progression. I mean there's probably those anomalies of people that remain immature for their entire career, but most of us sort of gain wisdom and with wisdom comes maturity and a bigger worldview. But you know, back to how do you do it? I think number one, you know, thinking back on my business school days and all that, you know, the soft side of management, I think is something I wish I probably paid more attention to in my last strategy class. And all that is that, you know, dollars and cents and models and you know, cash flow, all that stuff is great, it's a skill set and all that. But ultimately our business and all business, pretty simple. It comes down to relationships and, and you know, you talk about me in terms of. I always was very keen on, on being a genuine person and being approachable and free of as much ego as I could. I mean, you know, all that kind of stuff. And I think that sort of helps you when you kind of take these steps up. I mean, you go from just originator, manager. Well, people have to respect managers, right? And the only way that they gain respect is they have a genuine relationship with you. And I think that to me is, is something that goes, it's super, super important. I was, I was just at an event this week, the Chase Housing Conference, and Jamie Dimon spent an hour with the group and I was struck, struck by the fact that he said, this is Jamie Dimon, right, the biggest player in all of banking. And he basically said, I return every phone call and every email every day. And that kind of goes back to relationships, right? I mean, how does a guy like Jamie Dimon take the care to return every phone call and email? Because they have to be coming from every direction. So you take that to a smaller scale. If you're going to be a leader, that's what you have to do. You have to provide that access and relationship. And you know, if you're a branch manager, you may get, you know, some days eight or 10, you know, fires that come at you, but you can't, you can't hide from them and you can't sort of blame other people is that you have to hit those straight on. So I think that's how you kind of step in. You know, whatever you're going from branch to single to branch or branch to division or division to company or whatever. The thing that's most going to serve you is if you have that relationship with the people that you're working with and not, not a fake relationship, not, you know, you know, I care about you, but in everything I do, in my actions doesn't, you know, illustrate that. It's like literally approachable, Literally, you can call me at any time of the day or any time of night if you have a need and things like that. And, you know, a lot of people, you know, just don't think that way. They think, well, you know, that's, that's a headache or that's not what I want to do. But just know that management is, is involving, you know, more of a servant's mentality. And I always used to say as president of a company, the best thing I could do was go out in the branches because I got a good feel for it. But the people that I was talking to and all that and felt like things were going good. But if you sit in the corner office, the only thing you're going to get day in and day out is complaints. I used to say that I was the cheap complaint taker because people didn't call you to say, hey, Jim, just want to call you, say, everything's great out here, I love it. People only called you when they had a need and the need usually meant that something was going wrong. And so if you're not prepared to, to navigate that with an even keel and a good attitude, then perhaps you should just really remain in kind of a, you know, a solo type environment. Because that's what management's about. It's, it's basically taking on other people's cares, considerations and problems and, and helping them resolve those however you do it. And that's to your point, that's the softer side of that that people just don't think of. I mean, a lot of people think, well, I'm a successful manager, I'm a successful loan officer by inertia, I should just become a manager and do that. But some people, that's just not what they should do. And it's important that they really think about the day in and day out that they want to do every day. If you, if you want to be a super producer, great, go be a super producer. But if you want to build a team, you're going to have to do a whole lot of different things that you've done that made you a top producer. And I think a lot of people just, they go, I need to be a branch manager because I've been producing for 10 or 15 years. But that may not be their skill set and their psyche. Right? They may not be, they may not be good at dealing with problems and other people and underlings and things like that. So I think if I ever see branch managers that don't succeed, it's because they didn't really think through the obligations of managing other people.
[00:19:14] Speaker B: Does it ever come to a time we've talked to a lot of leaders on this show about staying in their lane and you know, whether, whether they're a shop that like, for example, we talked to one leader who, who loves the USDA loan, but that's not going to work in California, right? Or one that's going to specialize in gubbies or whatever it's supposed to be. And do you ever go to originate taking that away from the leadership of taking it down to the street level as an originator? Have you ever spoken to an originator or would you ever tell an originator, hey, you know what? You're really good at what you do, but I think that what you need to do is just stay in your lane. You are good at this. And you're trying, whether it's social media, like, hey, you're trying the social media thing. You're putting all your attention up, but your character trait says you need to xyz. You know, those are tough conversations to have. You know, those are pride conversations to have with certain types of salespeople. And I'm just wondering if you've ever had to take that direction to a sales team so that they can be productive not only for them, not only just for you, but also for themselves as a, as a team member, leader and originator.
[00:20:19] Speaker C: It reminds me of the conversations you have. I mean, this is. Everybody in our industry talks about, know, hunters and gatherers, you know, and to some extent is like that. You know, I'd say most people would say the prototypical loan officer is a good hunter, but I'm not a gatherer. And so whenever I've had those conversations, it's like, okay, well, let's look at what you're good at and let's look at what you're maybe not so good at. And are there ways to sort of fill in those missing pieces through maybe a highly effective loan officer assistant. Right? I mean, you're good at, you're good at getting the loans in. And like I said, doing the loan is not the hard part. Honestly, it's getting the loan. And that's. And to get the loan isn't like you just go out, you get it. It's, it's, it's been cultivated over months, if not years of a relationship and building that. And you know, you can ruin that very quickly. Obviously, in our business, you screw up one loan, you may undo a year of work you've done to get that relationship. But to your point, I think yes. I mean, you know, if, if, you know, if you've got a great loan officer, but they just, you know, you'll see this where it kind of gets a friction point because the operations team is like, you know, this guy's blowing me up. His. All of his deals are, you know, they're not put together well. He's always, you know, asking for rushes and all that kind of stuff. And those are the kind of situations I've been in where you have to say, look, we have to build a better processor mousetrap for you. I mean, you are great at getting the business in, but we have got to get a better way for you to get the loan from origination to the closing table, not only for you, but for everybody on this team. Right? I mean, you know, there's just, there's just no good outcome when there's just friction because to your point, somebody doesn't recognize their weakness. And so I've never seen it where you describe as, okay, you need to stick to FHA Lodge and all that, although you are seeing a little bit of this today. I mean, one of the current crazes or things in vogue is non qm. Everybody should be non qm, non qm, everybody's tattooed table. That's where you should be. And you know, I'm finding that there are some people that are just not comfortable understanding how you could calculate bank statement income or DSCR income and things like that. And that is one where you'd say, hey, look, perhaps you partner with somebody else, you have a DSC opportunity, maybe this one officer does those on your behalf and there's a, there's some sort of sharing arrangement. But you're right, you generally, it's rare that you find somebody that could be good at every single one of those things, hunting, gathering, structuring, and be an expert in every and every loan. Now there are those out there and you know how those people got that way is because they put in the work. I mean, if I were a loan officer, I would read every guideline and know that guideline back. You know, if you ask me, D A csr, well, what's the maximum, you know, coverage ratio and all that, I would be able to rattle it off. But again, that's because I'm more of an analytical sort of kind of type. And my personality now, I may not be the best in schmoozing a reload version to get the loan in. So to each his own. And I think you kind of have to help build your teams and put the people in the right seats or it will create problems in the manufacturing process. There's no doubt.
[00:23:33] Speaker A: I think there's so much transparency now compared to where there was, that loan officers are more empowered to ask better or just understand it better. So my question would be from the beginning, can you talk about some of the models that have existed over the years, Jim? Which ones are sort of going away, which ones are staying? And to bring it together, a loan officer may not be great at non QM and maybe they should not be selling non qm, but if they're Part of a four person branch package that's looking at which new lender to go to. I have heard there might be more yield for that branch in certain models out of non qm. So maybe their branch itself has better marketing, can sponsor more little league games and can put their banner, you know, outside of a local food kitchen that these GSE loans right now are so thin. So the loan officer needs to understand that if their partner wants to go to this, just ask more questions. Why are we going to this lender? Doesn't benefit me but maybe it does in a bigger picture. But can you speak about it in terms of different models? Because I think our listeners have never really gotten a good breakdown coach Saban style on our show yet.
[00:24:52] Speaker C: Yeah, you talk about models. I mean the things that come to mind. Obviously there are a lot of loan officers that have and are considering the broker model, you know, because you know you can step your own broker shop and plug and play with UWM and all that and then you kind of move from that into the the to the, you know, the independent mortgage bank model and you, you typically either have a corporate model or expense management model or P and L model, whatever you want to call it.
And then you know, then there's the banks and credit unions which they're all, they're their own different thing. But I think it is a, it is a point and it kind of comes back to this whole whatever boutique versus Big. I think it's what kind of support am I going to get at that organization? And off the top of your head say oh well clearly the answer is the bigger shop. I mean look at all the resources they have. But the problem with the bigger shop is, I mean I was thinking about this this morning is that you think about if you go to the hardware store and you could either go to your local Ace Hardware or you can go to Home Depot. Home Depot has got, it's big, right? It's got, it's got all these things. But how often do you wander around in there just looking, looking for, for what you need and trying to find somebody in orange vest to put you what you to do. I mean that analogy for I would say is very apropos for a loan originator. It's like you could go to the Home Depot of mortgage banking and it looks awesome and look at all these products and all this. But when you're there and you need somebody to tell you where the nail guns are, it may take you the better part of a day, if not a week to get your answers. And I think, I think what I'm seeing, having gone through, you know, been at a bank, being a small independent to bigs to back to this smaller size is that that's an important aspect for loan officers to ask to your point of like, okay, my team wants to go here. What does that look like for me? Do I, am I somebody that needs heavy support if I'm a loan officer, doesn't need support and I just need to bring loans in and close them as best possible interaction? Great, there is a home for people like that. But let's be honest, that's not the majority loan officers out there. I mean loan officers, they're busy, they're, you know, they're running as fast as they can. They generally need a high support function. And what I'm finding is contrary to what you would think is that you're going to find that in a smaller environment, which is boutique, that's the argument is that if you need access to a credit decision or a technical question and all that, you know, are you better off with, with a direct line to the answer or well, you need to put in a ticket and hope somebody calls you back from wherever they are. I mean, I think that's a real issue in today's day and age. And I can't tell you how many times people tell me that all loans are tough these days, right? I mean, I don't know if it's about our current economy or whatever we are, but it seems like there are no easy loans. Or maybe the easy loans are picked off by the rockets of the world, right? Maybe because their AI models are picking off all the easy loans and all they're leaving the rest of us are the loans that require you to roll up your sleeves and figure out tough things. And I'm going to tell you, that's where I think you start to see these advantages of boutique versus big. It's like, look, I get answers quicker, faster, right from the horse's mouth in a boutique environment. And that's, that, that's better for my customer, that's better for me because I'm, I don't spend a day or two chasing down answers. I, I was recruiting somebody in my previous position and they were at a big and they were frustrated because there were no phone numbers to contact people to get answers. You only had anonymous email inboxes to get your answers. And I could tell you that's just an off putting environment for a loan officer. It's like, well, you know, I have a servicing Question. Well, can I call Mary Sue? No, you can email servicing mortgage.com and wait for the call back. I mean that's, that's what I think you're seeing, you know, the bigger and bigger some of these companies get. That is the sort of customer service interaction from a loan officer's perspective and even the client's perspective too. I mean we all know we've had nightmares with big companies. No matter consumer goods or airlines or whatever, nobody enjoys going through a customer service tree, you know, to try to get an answer and spending all day try to get that. And you know, that's where I kind of draw a parallel to what's happening in this big versus boutique is that.
[00:29:16] Speaker A: I have a quick comment and then Mike, you get it's not a question. So I also find like you would go to Home Depot for quote, better pricing because they can buy at scale and they also mastered like the fake boxes for a while. So we'll give them some credit on building that business. But since everyone sells to Fannie and Freddie, that scalability of better top line revenue isn't there. So we are dissecting the other parts and therefore that should be a point to the true value all day long, which is the boutique.
[00:29:48] Speaker C: Well, I was going to say on that point too. And the bigger you are, the more of a cost structure that's on the lo's back, right? I mean, that's what I say. I mean it takes a lot to keep these giant merge entities rolling. Right? And what does that mean to your point? We all kind of execute a commodity within a few basis points. So there isn't any, oh my gosh, they're bigger, they execute at a 50 basis points better. You know, if there's any execution difference, we're talking single basis points. And that's chewed up by the fact that look, to keep that engine compliant and running the technology demands and all that, there's a whole lot more cost in a big versus a small model. And ultimately I think that could drive to have a boutique price that's actually more competitive than a big model because you're not paying for eight levels of managers above you that are having to just sort of ride herd over the production franchise. And so yeah, to your point, it's quite the contrary. You know, that there isn't better execution, there's just more cost in a big.
[00:30:48] Speaker B: And I find it to be interesting from, from an accounting and economics point of view because I always thought that hey, you know, if you work for a bank, the more, the more Volume that you do. I mean, from a practical standpoint, the more volume you do, the more that you get paid. From a bank standpoint, you're working for a large FDIC insured bank, and for the most part, that that model seems to work. But what I have found is that if you're an originator, the more business that you produce, once you go from four loans a month to eight, to even as a team, 16.
Sixteen units, say, for example, you find that your actual basis points becomes a diminishing return.
And that, you know, you might have started out from 0 to 4 thinking, oh, I'm going to earn 125 basis points or 150 basis points based upon some volume metric. But then all of a sudden you eat 110 loans a month and you're like, oh, I got to hire the assistant or I need extra ancillary services.
And actually, at the end of everything, I talked to one top producer here in San Diego and he was like, yeah, you know what, Michael? Even though I'm over a hundred million dollars in XYZ, certain things, I find myself actually at 60. 60 basis points a file, right?
[00:31:56] Speaker C: Yeah.
[00:31:56] Speaker B: And it's a, it's a diminishing return that originators, they understand when they hear it, but they don't get it in its execution. And so there's a disconnect right there from, from manage, from ownership, management of an INB to someone all of a sudden switching, switching out, going, oh, I get it. I have to actually be a business person, make that switch. In economics, does it become that way?
If you're an originator and thinking that way, then. And as you've made the transition from one company to another company, and then ultimately now from where you're at right now as a leader in the economic space or in running your operation, is there also diminishing return the larger you get in more units that you find. So that as a, not only as an originator, you're following that model, but as a leader, you're also following that.
[00:32:47] Speaker C: Well, I think the mission in terms is if everything was on a constant level, right, then it would not be the case, meaning if it could count a production level. And the more you did, the more that you're sort of your. Your covering fixed cost. But the problem is the big. You have to add all this cost of volume is good, and then volume drops, well, then you've got more cost to reduce and, and all that. So it's not a perfect sort of linear relationship in terms of what you're talking about is that it fluctuates highly in terms of volume and then your costs are upside down, you're having a costly thing. But when you're talking about a P and L expense model, all that, I mean I am finding that it's probably the predominant model out there now. And to your point about economics and all that, it's very simple, right? Because you get a, you get a scorecard every month on how you're doing. And if you're not doing well, then it shows up at the bottom line. And if you're on an expense management model and your competition is tied to that well, you're not just going to sell your hands and say, well, well shoot, maybe next. I mean it, it takes around all, it takes away the high level executive having to say, look, maybe you need to cut this expense. In those models they're like, all right, they've already beat you to the punch, right? Because it's basically going back to pre Fed comp rules. Is that the company and the loan officer or the branch ep, expense management, you're perfectly in alignment, right? You both want the same thing, which is to make as much money. But when you take that dynamic away, meaning you're in a corporate model and know you'll get away with as much as you can in terms of if I have excess headcount, all that, but it doesn't affect my compensation, then why bother, number one with the interpersonal difficulty of having to let people go. But number two, if it doesn't affect your paycheck, do you really care about it? So that's why I'm finding that model. The more that I went out and talked to people and explored the market, I think it's, you know, I'd say It's darn near 50% of the model out there these days is that every company has got some version of an expense management model. And it's because once the Fed changed the rules, it took us this long to get back to a model where the company and the originator, the branch manager are in alignment. Which if that's not the case, that's a terrible dynamic if your managers are not aligned with the company's goals. I mean, good luck being successful in that because that's a tough, tough dynamic to manage.
[00:35:25] Speaker B: There's been talk about the elimination of the CFPB. And I had a PNL 15 years ago and you know, I'm like, I can't be an originator and own a pnl. What are you talking about? And so which if the, if there's an elimination of the cfpb, if there was one, do you think that we're headed in the direction where an originator slash P L owner, would that be more beneficial and would it help the industry or would it hurt the industry in your opinion if that were the case?
[00:35:58] Speaker C: Yeah. First of all, I don't know that we'll see the total elimination of cfpb. But I would say this, that even if it was, I think that we've evolved enough as an industry. I don't even how many years it's been since the Fed comp rules and Frank came out. But mortgage bankers are, if nothing, if not, you know, very adept at adjusting to whatever the rules are. Right. And so call it 10 plus years from that, most people have adjusted to a way to sort of get to that same point, which what you're talking about is a P L, right, is that okay, people are compensated to run a profitable business, which is honestly the cornerstone of it setting aside non profits. Everybody that goes into business does it for a profit return. So I think we've got to the point where that is kind of the norm. So I don't think that it would be a wild sea chase if, let's just say that the CFPB is eliminated, which I don't think it can be done because of the statutory way it was established. But you could obviously, and you obviously will get a much more business friendly head of the cop. But I don't see then like the entire industry running to like, okay, compliance takes a holiday. We can do whatever we want. We could, we could pay, you know, we could pay you differently on every loan, the originate, et cetera, except in the margins. And look in, none of us should be concerned with what happens in the margins. I mean it's, there's always going to be people operating in the margins or up to, up close to the sun. Right. I think that, I think just by sheer passage of time and through enforcement actions that we've been able to take and digest and study, I think most mainstream mortgage bankers kind of understand what's permissible per the law and what's a step too far. But there are other things I think that you would see that may be exploited more. So Michael, if that were to be the case. But again, I don't think we'll spend a whole lot of time strategically thinking about if the CFPB are eliminated, what would we do less compliantly? Because they're not out there to slap us. I mean, no, no, no, no, I'm.
[00:38:09] Speaker B: Not talking about less compliance. What I am talking about though is how to turn it from. Instead of taking. No, no, compliance is actually a very good thing for our industry. It keeps, it keeps loan originators honest or at least hopefully honest and with integrity and also should keep customers, in all fairness to the. To Main street, hopefully would keep them honest as well. There's always a few bad actors in any industry. Right. But I think that we're looking to figure out how in the, you know, in the landscape of the smaller mortgage banker to the large huge institution, whether it's an IMB or whether it's an actual FDIC bank. I think that the part I'd like to emphasize is that you've, you've spoken about how to be. And you didn't use this word, this is my word, nimble.
Okay, Nimble. In your experience of making a transition.
And so what I've appreciated about what he's been able to speak, and this is more of a comment than a question, is that you've created a type of nimbleness or flexibility in your culture. How to be flexible if you're an originator when you're speaking to them about the P and L model and then also being nimble and flexible about how to have your business structure. And we had a. We have a question from our audience and I want to be able to read it to you. And it's from Joe. It says, with your experience and relationships, what is the most important thing you can go to? Drive down cost at the branch level. Meaning when you're looking to bring on new branches, how can you help them drive down cost? And this isn't speaking to, and I'm bringing this up because I'd like to go to the nimbleness of not only the branch manager, but now for you as leader at the company. So how can you, in answering this question, if you don't mind, how can you help the new branches and driving down cost and being nimble and explain to them as part of your culture.
[00:40:10] Speaker C: Yeah, I mean, I think obviously in today's day and age, I mean, the biggest expense in a branch is always going to be the human, the human expense. Right. The salaries, the costs and all that. So it starts with that. And, and given the person that asked the question, who I know is very. A tech savvy person, I mean, I think in this day and age, look, if I were building a mortgage coming from scratch today, it's entirely different than dealing with legacy kind of issues. All these mortgage companies have all been built on one sort of paradigm. And it's changing every day right underneath our feet, right, Is that you could probably in this day and age, stand up a mortgage company with a fraction of the employees using bot technology and artificial intelligence, all that. That, that would make you an entirely different sort of animal altogether. And that is a, that is a dynamic that we all sort of have to adjust to. But I think, you know, it's, it's to your point about, you know, a PNL model versus a core model, I mean, is it, you know, when somebody is looking out for their own pnl, they almost do that for themselves, right? It's like, well, do I need to hire a $75,000 sort of, you know, processor LOA in my model? Or, or, or is there a better way to do that? Right? And it's. If it's a corporate model, it's like, well, of course I need my loa. I've always had loa. I mean, I need my loa. And it's like, you know, it's a, it's a cost to do a business, but a company to hire those people. And so I think, I think the answer to that in this day and age is, is really looking at all the technological tools. And this kind of ties back into boutique versus big is that I think, I think there was a time when the bigs had an unfair advantage because their technology budgets were so much bigger. Is that they could outspend all the little guys and have a better mousetrap. But let's be honest with the vendor community we have.
A boutique can have every bell and whistle and shiny object that the bigs have at the same cost and it's honestly variable and scaled automatically. So it's a beautiful thing. I mean, today a boutique investor can have the great products, great technology, but a flatter, more nimble environment, right? Which gives it a built in advantage. I mean, there is technology today. There's very few loan officers that go in to go for work for a company because, gosh, look, their technology is so much better. I mean, 90% of us are running one of two Los systems, Empower or Encompass. I mean, so. And that's the bulk of sort of the underpinnings of technology. Then there's, there's some front end pieces, but there's CRMs, but. And then there's, you know, the evolving bot technology. But the thing is, boutique companies can play in that space because of the vendor environment and because of the evolution of technology to such a point that it doesn't give the bigs a built in advantage.
[00:43:01] Speaker A: So especially on the front end, customer facing side, technology wise, if a boutique doesn't have it, they can have that technology tomorrow and.
[00:43:12] Speaker C: Exactly.
[00:43:13] Speaker A: And if it's a point of sale like you can't build your own point of sale that's better than what you can buy out there because it's still 265 questions. It's not a great piece of technology and I don't think a realtor is going to work with a company or not work with a company because of their point of sale at that point. It's already been an established we know the house, we know the pre qual, just get me the pre quality. There is a huge void in software that's customer facing that lenders need to bring to customers. James Dwiggins runs NextHome, right, was our guest last week and what they're shifting on real estate. I found this very interesting is they're learning software that is just generalized software like Kubacasa, which is a floor plan software. Right. The mortgage industry has this knack and I've been in it where they need to own it or white label it or it needs to be their Kubacasa. They can't just. And I hope they follow this because it sounds like these teams because you know, real estate agents are starting to have teams now. They get experts in these softwares that are 29.99amonth, 39.99. We're not talking enterprise and that's how they're differentiating with from the other Realtors that have access to that technology as well. You just go online, no implementation, just sign up, but leadership down, that's not an M.O. and because the average age is let's say 58, they're not going to go learn that. And so now their packages actually will do the blueprints because they know how to do them using that software. We're, we're going to do a walkthrough with you on this technology and I don't think the customer really cares because after they're done buying it they don't care if you use Kubakasa or you know, next home. So I think that is where the separation will eventually be. And again that's leadership and I think that can be better taught through boutique because you get a trainer at a large place that I don't think they can have any empathy for. The fact that this is somebody that's just learning these softwares in general, let alone this particular one. And I think in the boutique you can have somebody like you, Jim, saying, all right, I'm going to roll up my sleeves and try this out with you guys today and then we'll go through and see how hard it really is. I think it's a huge advantage for you in the future.
[00:45:37] Speaker C: Yeah. And again it's, you know, you could say, well, you know, the bigs could afford to build their own and own their own bot technology and all that. But you know, you know, then you're responsible for maintaining and doing all that. Where if you're on a vendor, a vendor relationship, service software as a service type thing, I mean it's a very nimble variable cost method. And look, from day one when I came into my role, my biggest objective in this space is get as much variable cost as you can of the model because that, you know, it's a crazy business when you're closing 150 million in June and closing, you know, 60 million in December. And how in the world do you build a cost structure that allows you to survive that? And so the only answer is you get as much variable cost as you possibly can so that you know your cost is in correlation to your revenues. But, and I think to your point is that we can do all this and it's a day and age that you know, smalls can have all the shiny tools that the bigs have at a very similar variable cost structure. And therefore you've eliminated that advantage of having a bigger technology budget. I mean. Yeah.
[00:46:45] Speaker A: And one more piece just as a shout out to Silverwork Solutions is a client of Adopt, the brand de facto sponsor of this show.
[00:46:54] Speaker C: Yep.
[00:46:55] Speaker A: One thing they do well and you say bots is they're the only ones that have Persona based where they can actually. So Harvard Business did a study. You need to replace 65% of a job or a CEO to understand how to get rid of the labor to replace it with that, that robotic we'll call it. We're not talking chat bots here and that's not even in mortgage. So I'm sure that number would have to be higher in mortgage. Right.
They do it, others don't. So there is a lot of room to buy a lot of frank and tech technology and really spend and not actually get anywhere from a cost perspective. You also mentioned the legacy versus starting new. What's interesting is there is this scalable line in technology like silver work, which is one I've never seen before where you have to do about 400 units a month. Unless you know me at adopt the brand, give me a call. But you know, that's still considered a boutique. I think in this world of legacy, right, if you're below that, you're going to need to find revenue ways to get up to that number because you're still going to have to get to that number. But once you're at that number, you can then compete with the highest, you know, at a pay per drink model and you should be able to really start to crush them on cost, speed and efficiency. And I think that's, that wasn't available a year ago, that wasn't available two years ago. It was built in house with, with robotics, like you're saying. So that is going to be a place where the boutiques will be able to compete with the big ones. But at the same time, if you're lower than that boutique, you're going to have to do it other ways because it's still not scalable.
[00:48:37] Speaker C: So yeah, I think you bring up and you have to, because it's about efficiency. I mean I describe it as the Amazon culture is that, you know, we're in a point where we're always going to have margin compression because the availability of information to consumer is just too easy. I, I always say, you know, my wife at one time we were shopping for guinea pig food or something like that. Rather than go up to the pet store, you type it in, oh, and it's cheaper here. Ellen will be on the doorstep tomorrow morning. Well, the same thing exists in our mortgage space is that I get a quote for 6.75 conventional rate. Well, what's the first thing I do as consumer? I type that into Google, you know, conventional rate in Dallas, Texas. And you know, Now I've got four quotes that are six and a quarter versus the 675. So that, that, that's never going to wait. That's only going to get probably obviously more, more important as AI and all that kind of stuff drives it. So then, so how do we compete? Margins are, I guess I'd say, going to constantly be set at a level where the only other side of that equation is to be more efficient. Right. Is that I have to drive down the cost to produce. I mean the MBA says our cost to produce is still running $11,000 alone. You know, you've got to drive that down and the only way you do that is, is that to, that is you have to invest in this kind of stuff to just scale down the cost and be more efficient at producing in the manufacturing process. And to your point, fortunately it's available for shops like ours, boutique shops, is that we can find partners that allow us to play just like the biggest guys in the space.
[00:50:16] Speaker A: Well, in the last five years I think it has been a big BPO send it offshore to India model. Those larger companies are still on that and that's where they could buy at scale and bring down the cost. Now that this software is here, you can actually do it better than that. We call that last year's war. Actually I'm probably gonna get some slack for that, but from the BPO providers. But now you can compete. And I think it's easier at a branch model because I did a lot of work for large people po and sometimes, you know, as you're recruiting a new branch, they'd rather use their own processor and they start to say, you know, sending that overseas is not, let me just keep going. And so I think it's easier culturally.
Not to mention, this software now helps drastically for mortgage companies in an area that has always been a problem, which is you're busier on the 24th, the 25th and the 26th of the month and maybe the 6th and the 7th. Right. You're busier from 3 to 5 o'clock in the afternoon than you are at 6 and 7 in the morning. And the fact that these digital workers can work, you're not paying, which has always been a problem. You're not paying the 27th salary for the 27th of the month of performance for the other 26 days. And that's not a knock on anybody. That's just a way overdue fix for this industry that will, that will drive down costs.
[00:51:40] Speaker C: Yeah, I mean they don't take vacations, they don't, you know, they don't have sick days, they work 24, 7 and you know, and all, all that. Now obviously it's not eliminate employees, but it's just, it's just addressing that thing about variability and scalability that I talked about that I think that's going to be the real sort of great benefit of deploying these things into your manufacturing process is that you can kind of keep a more stable sort of workforce, which is good in many respects. Number one on the software side, it's great for your culture. Right. There's nothing worse in building and maintaining culture that firing people, hiring and firing, it's, it's just difficult. And so if, if these technologies, bots allow you to then maintain a very stable core workforce and scale up and scale down, then, then you, you've kind of solved it.
[00:52:32] Speaker A: So so when you are more efficient and you are a boutique lender, how far up the scale, I guess in this question can you go and keep saying you're, that is, it is a certain amount of loan officers, a certain amount of state.
[00:52:46] Speaker C: I don't know. I don't know what the debarkation is between boutique regional to big to, you know, whatever. But yeah, I think, I think it does create this whole, it probably widens the boutique sector quite a bit. Right? I mean, you could still be a small nimble with great access to management, great culture and be doing, you know, shoot several hundred million a month, I suppose. But yeah, I guess that's, yeah, I.
[00:53:11] Speaker B: Like to make an argument to that actually, to think that, you know, we, whether you, let's say you have a consumer direct division and your consumer direct division specifically says, okay, well, we're the consumer direct for non qm, we talked about that earlier in the show. Or I, we're the consumer direct for all the leftovers of the branches. In other words, like you have a pipeline, you have a h. Pipeline of turndowns or customer turndowns, meaning that the customer has made a turndown. So they're in the pipeline to, to either remarket in case the originator does a poor job or the branch does a poor job or you have a consumer direct division of non qm, whatever it would be. So my question to that question is, do you think instead of having mergers and acquisitions in the upcoming year that you could just say we're going to form these, we're going to form other branches that are going to make a specialty, specialty boutique. So we're going to have the boutique lender inside of the, inside of a big, large lender. And do you think that that type of model, in other words, he asked, can't it to be bulk, you think that model has a possibility of happening? Since you say, okay, well, you know what, maybe we don't want to be the boutique or maybe we want to have our own. But why can't we, why, why can't we have a rich uncle helping us while we are also a boutique?
[00:54:33] Speaker C: The optimist says yes, but the pessimist says it just, you know, organizational dynamics just never play out that way. You know, it just, it's, it sounds good in concept, but I think, you know, just human nature, corporate nature and all that sort of sins to dilute that idea of that. I mean, and that's again, culture, you know, like, you know, I spent, I spent several weeks or months talking to people about where I'd go work next. And there wasn't one company I talked to that didn't tell me that they had the best culture out there. Right. I mean, that's. But I will tell you that it is harder to manage culture the bigger you get. I mean, it's just. That's just sheer numbers. I mean, we could probably sit here and name three or four large organizations that say they have culture up and down the ranks. You know, Chick Fil A, for instance, whatever. As big as they are and is what they're doing, they somehow have figured out, you know, people schlepping chicken to people at the highest levels. They all kind of speak from the same hymn sheet. But that's rare.
It's rare because I say that we recognize it, but we can't name off 25 or 30 big companies that are able to have culture pervasive from the top to the bottom. And that, again, is why I think having all the tools, tricks and processes of a small and accessible enables you to keep that culture, which I think is more attractive. Look, people want to work where there's good culture, and the bigger you get, the harder it is. I mean, that's nothing against bigs. It's just. It's just one of the laws of physics, right? I mean, the more people you have, the more diverse personalities, the more dispersion you have and the harder it is to get a cohesive culture when you're that big. And so I think, to your point earlier, Mike, about what should they be looking at? I mean, that is something you need to look at. I just don't know how you measure it other than just, you know, talking to as many people as you can. And, you know, look at tenure and stuff like that. It's very. I mean, it's impossible to measure culture, right? It's. It's like the Supreme Court says, pornography. Right. I can't define it, but I know when I see it. And, you know, that's what culture is. That's right.
[00:56:39] Speaker A: What do you. As we're winding down here, as you've come in and put your stamp here on Assurance Financial, how have you changed the onboarding for these new groups or lenders, if they watch this show and they want to reach out, what is the port of entry in, and then as they move towards getting acclimated with you, how do you think you have changed the onboarding process where they feel a better connection with the main leadership?
[00:57:07] Speaker C: Well, I think it's a personalized touch. It's almost like let's go back to pre Covid, which means let's bring them in to the corporate headquarters and have them spend two or three days, you know, going through the training, but also meeting every single sort of person that they're going to need to know as they go forward and get released into the wild. And you know, you know, zoom calls and all that were great and they create efficiency, but they also did produce this dynamic where people never are in the same room. And, you know, that was one thing that people asked me about my first few weeks at Assurance. How is it? I said, well, I can't tell you how excited it is just to be back in an office with 65 or 70 people. You know, it's just there's an energy and there's of an ability to get stuff done and have impromptu meetings and all that kind of stuff. And so as we've thought about the onboarding, it's like, look, it's expensive to fly somebody in and, and get a hotel and do all that, but my gosh, if you're, if you're hiring someone, it's well worth the investment and this whole Zoom culture. And we can just, you know, you can go through a video library and some zoom calls and you'll be trained up already to go. It's just not as effective. I mean, and again, I get it. The bigger you are, the more of a logistical nightmare that is to try to bring people in from all over the country and get them in on a class and start at the same time and all that. And so I would say that is where is more exciting. As people come in, they sit down and they sit with a trainer and they go through encompass from soup to nuts. And then they meet with marketing and they meet with capital markets and they meet with all. And you just try to walk away from those three or four days of training like, oh my gosh, I feel connected now. I know by the servicing question. I call, you know, Mary over here if I have this question. I. That. And it's just, it's just a, it seems so simple and basic. But, you know, after the five years we've all been through going through it, it was extremely eye opening. So it's, it seems like that's the.
[00:59:03] Speaker A: Way it, you know, should be the way it was. Very cool. Mike, take us home.
[00:59:08] Speaker B: Thanks for being on our show today. We really appreciate that. You know, today we talked a lot about, about being nimble. If you're going to be a boutique lender or a large lender, whatever the situation is. And if you're an originator that's looking to figure out whether you're a broker, whether you are working for an independent mortgage banker, large or small, the real question I think you need to be asking yourself is does the leadership that you work with, do they have the willingness to be nimble to make changes as you make changes? And take the economics, meaning that your profit and loss model, your branch model, and even your origination model and your sales, do you have the willingness? Do they have the willingness and can you come to a meeting of the minds in order for you to be the most profitable organization, not only for you and also for the company at the same time? Jim, we had an amazing conversation today and I really appreciate you coming on board to give us your take on boutique lenders versus large lenders. And we're of course always looking for comments from our audience. So if you're looking to please like subscribe and join us on all of our channels, we're looking forward to not only seeing you, listening to you on our questions in the future, but also please join us so that we can continue not only with other mortgage leaders in our industry and also for our customers and for the originators that are watching the show as well.
