Episode Transcript
[00:00:00] Speaker A: Hello and welcome to our opening episode of season four of the Mic'd up show, where every mortgage has a story.
This is the ultimate hub where hidden stories behind the mortgage industry come to life. I'm Michael Kelleher. My co host is Michael Zhao. And in every episode we dive deep into the entrepreneurial spirit, strategic insights and breakthrough innovations that build the world's greatest mortgage companies. Whether you're advancing your career, scouting for industry leaders like the one we have today, or exploring opportunities in fintech and proptech, you're in the right place. Get ready to unlock the story behind every mortgage and let's dig in. Today we have Stanley C. Middleman who serves as the president and CEO of Freedom Mortgage. If you've been following us throughout our journey, you know how important the mortgage industry is and he is at the top in one of the largest and fastest growing independent mortgage companies in the country. He's nationally recognized as a business strategist and investor. If you read his book, Philanthropist is very important to him. And with over 30 years of experience in the mortgage banking industry, he's able to bring a lot of this knowledge like he did at the IMB conference and now to our listeners. And we are very fortunate. Since he found freedom Mortgage in 1990, Stanley Middleman has grown the company into one of the nation's largest non bank mortgage lender servicers and a top VA and FHA lender as well. He's also an active member of the NBA. And our episodes from when we had Bill Lowman on to Stephen, the other episode, the NBA is where Mike and I naturally go a lot during this because the purpose of this show often is for somebody that doesn't get to go to these conferences because maybe they're so talented, somebody's worried they're going to get recruited. They don't know how easy it is to go. But we try to bring you the type of people you may run into or at least see up on stage. And he serves as a board of directors and he was previously on the NBA Res board of governors and he served on numerous advisory boards, including boards of Freddie Mac, Annie May, Ellie May. I just want to take. We do want to focus on his book today as well and we will get into that just before we give it the big plug. I was capture where there you are on the streets of Philadelphia looking at your accomplishment. You have these tables out everywhere on the corners. You got 30 of them actually. And we know that you talk about how hard you had to be the first to show up the Last to leave, very territorial. You have it, you get to take a deep breath. And as you do, I'm guessing a thundercloud hits, rain starts sprinkling. And you're used to that, but not the type of torrential downpour that happens. Shirts end up in the gutter, they end up wet. And you go back to this story about seeing around the corner and, and it's not always something you may be expecting that changes everything. Can you talk about that day, Stan, and thank you, by the way, for coming on the show. But can you talk about in that moment, in that day, how it changed you so much that you talk about it so much in the book or go back to it?
[00:03:27] Speaker B: Well, so it was 1976, so we're going back quite a distance.
And it was the 4th of July, and I believe Gerald Ford was in Philadelphia to give the address for the Fourth of July and celebrate the bicentennial, the 200th birthday of the country. During that time, just to kind of bring everybody up to speed to the area that you were discussing, there was a tremendous population of people visiting the city of Philadelphia, the birthplace of the nation.
And I was a vendor selling T shirts and little liberty bells and pen and pencil sets and other little souvenirs.
And the day started out beautifully and it was warm and sunny and we were doing a brisk business. And then as the afternoon wore on, as it does in the summer, it got warmer and warmer and stickier and more humid and the clouds began to gather and we had tarp, so plastic sheets that we put over our stands if it started to rain and it started to drizzle and we started to put these things out. But this was a special day. This, the tourists were especially thick. There was a lot of activity going on. There was huge crowds of people. So we had more inventory in place than we would normally have in place. We had more people in place than we would normally have in place.
And all the money that I had made in the previous couple of months since like April, I had plowed back into inventory and I, this was my day and I was going to really do it. And we, we were having a bang up weekend and we were doing terrific and we had all this inventory and all these people were out and they're, they couldn't buy enough of this stuff fast enough.
And then the skies opened up and because there was so much inventory, all of it didn't get covered. And especially the boxes and boxes and boxes of T shirts.
So the T shirts got wet and there you saw them Floating down the street in the, in the gutters as the water started to run towards the sewers.
And we gathered them all up and everybody was busy and I was running around in the truck trying to pick up as much stuff as I could to get it out of the rain. And ultimately my friend got his mother to wash all these T shirts and we repackaged them, but they were made in Korea, which at the time was not putting out the best fabrics and everything shrunk. So all the sizes became mis sized and these crisp brand new T shirts were now like get for infants and little children and you know, smaller people. It was, it was quite the thing. We recovered and moved on with our lives and it, it was still up to that point the greatest single day of earnings I had ever had in my life. And it was, it was such a spectacular thing that you really couldn't rain on my parade. But it tried and it rained pretty good and the consequences were severe. And that's kind of falls under the best laid plans of mice and men sometimes go astray. And I think that's what happened to us. And even though it wasn't great and it wasn't always good, we learned a lot from it. And one of the things that I guess is the big lesson that comes out of that is that even if you're prepared, major things can happen to you.
It's not always you that controls the outcome. And no matter how successful or proud you get or confident you become, you should have a certain sense of humility because if you don't, the world will give it to you. And the capacity for humility is learned through failure, not through success.
And success is the antithesis of humility.
It doesn't lead you to a humble understanding of the challenges that you're going to face that are beyond your control. And it makes you feel the all powerful Oz behind the curtain. And that's not how success is built.
So you better have a good dose of humility or you're going to have trouble really getting the opportunity to pile up achievements because success is cumulative.
[00:08:42] Speaker A: I know Michael's excited to ask a question, but I think this is a perfect chance. Our official title sponsor is Mortgage Connect of this show. We thank them and we asked sometimes for fun if they would like to ask a question and they wanted to ask what you would go back and tell the your 20 year old self. But based on what you just said, I think a better way to ask it is what you just said about being humbled sometimes by life. What could A loan officer or anybody listening go home and tell their 20 year old daughter or son that maybe teaches them how to handle something like this at 20 versus later on in life.
[00:09:19] Speaker B: Well, so the problem with being 20 and having any success at all, you don't hear very well.
It's when you fall down and skin your knees and the blood runs out of your ears that you're able to hear through failure. And I think failure is a wonderful teacher and I think the advice that I would give is the way I behaved, really what was it was this way is that you can't get a hit if you don't go to bat. And if you go to bat, there's times you're going to strike out. Don't be afraid to fail since you're.
[00:10:00] Speaker C: You know, when you're in your 20s. I don't think people are afraid to fail, but I think people in their 20s do is they look at the, they look at opportunities and you know, the world is your oyster. And I think one of the things we look at is in your 20s is if the world's your oyster, there's lots of opportunities. You look back at the bicentennial and you saw an opportunity. You saw the opportunity in unused time for, for your disco deli, turning, turning unused hours into a time period where you could actually generate revenue. You saw high interest rates in the seventies and then, and, and you utilized it. You know, you had higher annuity payouts or higher rates mean there's lots of opportunity. How, how does, how does an originator. And now in the mortgage industry there's lots of opportunity, not just in agency or purchases, but there's still refinances. And, and you, because you did that in the 70s when you said in one of your advertisements make the same payment on a 15 year payment encouraging homeowners to pay off their mortgage. How do you, how would you encourage an originator today to choose the right opportunity whether it's purchase or non QM purchases or refinances or when you're focused. Stan, one of the things you did well is you saw continued success with continued focus. How does someone remain focused with that opportunity? How would you tell that to a 20 year old?
[00:11:29] Speaker B: So when you're young and you need to be pragmatic, so you need to put one step, one foot in front of the other and keep striving for what you can be. You don't know what you can be. You don't know how good you are, you don't know what skills you possess. And what skills you lack, your ability to take inventory as a 20 year old is not very good. It's just that you just, you don't have that skill set. Especially boys who tend to be more immature than women.
They don't even begin to understand that that's why they make good soldiers.
The reality is that you have no idea what you can do, so you think you can do anything. So pragmatism is important.
And understanding what you need to do and doing it and accepting the consequences of your success or failure and being able to accept those consequences with humility. Because the lesson that I learned through those early 80s and on into the 90s and over and over again since is that I'm not a market maker, I'm a market exploiter.
And my ability to take the opportunities in front of me and make the most of what I've been given, sometimes I have to work twice as hard to lose half as much.
But the reality is you have to face your environment and make the most of the situation you're in. If it's cost cutting, if it's investing, if it's trying new things, if it's taking small steps and trying to create new products or use other products, or learn things that you don't know, you have to do them in increments that you can handle so that you can go about the business of getting better. And you have to be able to take stock of where you are and constantly put yourself on the trail of getting better and better and better without trying to be your best. Because you don't know what your best is.
[00:13:48] Speaker A: Yeah, you talk about how success is cumulative and the misnomer is that striving to be your best, you can't be your best all the time or it wouldn't be your best.
[00:14:00] Speaker B: I don't know what your best is. You have. Most people have no idea what the best is. I never dreamt of being where I am today and I know I'm nowhere near as good as I will be.
[00:14:12] Speaker A: And you talked about just instead focus on raising the floor. And you also talked about how fear really gets in people's wake. This market people have a lot of fear right now and are focused on the rate. What would you say is a fear that they should look past?
[00:14:27] Speaker B: I wouldn't focus on worrying about what's going on with rates. I would say these are the rates. How am I going to make the most transactions out of these rates? How can I make the most profits out of the transactions that I do when volumes are low? Margins should be high and expenses should be controlled.
So you should be looking to charge more when there's less and do it better and make a bigger profit and provide better services.
Because you need to create a value added proposition that's special so that you don't have to do as many transactions to be successful within the context of yourself or your business. Because you should have reached a size that allows you to be successful. Now there are other ways to do that. There's lots, there's. And that's probably the other lesson that you learn in life, is that you don't come up with the only idea.
There's a million ways to skin a cat. And that is absolutely true. Nobody just said that. And you know and have no example of it. Now the way that you think about it may be the best way, but the way somebody else thinks about it may be 98% of what you would have done if you did it yourself. You can probably live with 98% of your outcome. If you can increase your capacity for volume by tenfold and you still got 90% of what you would have done personally, you can live with them being less than as good as what you would have done yourself. And that's how you learn how to delegate. By seeing other people perform at a level that's not quite up to your standard, but it's not so far below your standard that it doesn't make you better.
[00:16:21] Speaker C: In total, you mentioned at the beginning of just after your life insurance annuity career, but the beginning part of your mortgage career that your initial intention for mortgages were 15 year mortgages and then making an investment into annuities. It's like the first part, it's like you knew of Mortgage Coach before it was Mortgage Coach. Yeah. And it's actually very out of the box thinking, what would you encourage the originator? Today we're still in a, we're. It's, it's not as high of an interest rate market, but it's a very similar market today. How would you encourage the originator to look at it? Whether it's an agency loan, non QM or how would you encourage them to look at that with their financial colleagues?
[00:17:05] Speaker B: So I think you have to wait. So what I didn't understand at that point in time was that that was a unique opportunity for that moment in time.
At that moment in time, the environmental climate was perfect for that thought. So you had had property values rise.
Right. You had interest rates rise dramatically.
You had really tight underwriting. It was really hard to get a Loan done. Average length of time to get a new first mortgage was like six months, five months. The documentation was off the charts difficult. Normal file was about that thick. Everything was done through the US Mail. That's something where you put an envelope in a blue box that was located on most corners.
A man in a white truck came by and picked up this envelope and took it someplace else several days later.
And then that's how all verifications were done. There was no Internet there. There was no fax machines. There was no email. There was that. There was, there was U.S. mail.
The new thing that came along was FedEx where you could do it overnight. And people said, well, what do I need to have it tomorrow for? I'll get it the day after.
So you had a whole different line of reasoning going into and speed and thoughts for speed. People would go out for lunch and be out in the afternoon for a couple of hours and come back to a stack of messages that they return phone calls on. We typed disclosures on manual typing typewriters. Typewriters is what they were called. They weren't called keyboards.
Keyboards look like typewriters did, except you had to push harder on the key to make the key go down.
So there, there was, it was a special moment in time when interest rates were falling so you could get a new mortgage at a lower interest rate for a bigger amount. That allowed you to invest and get a good return on your investment and shorten the term of your loan and keep your monthly payments the same.
Now that math doesn't work in all environments, but being a young man, all I knew is it worked now and I was going to do as much of it as I could.
And that was the pitch I went out with. And as a result of that, I was able to learn the mortgage business.
And it was just because of that magical moment in time when all the atmospheric conditions were right. And what did I do? I learned how the math worked and the math opened doors of opportunity for the people that I spoke to that became customers.
[00:20:22] Speaker A: Well, there's a lot to unpack there. You touched on technology, my favorite. So I'm humming for a question. We just have a quick sponsorship video to show. And on the other end, I am going to ask a quick technology question for you.
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You mentioned at the IMB conference to the audience that mortgage lenders, the leaders there typically think very linear finance accounting, P and L balance sheet and with margins so razor thin, it went into your book. They really need to focus on what could be around the next corner. You mentioned a strong real estate retraction up to 30%. Yes. Listeners, stay tuned for what year? Maybe. But my question is on technology. Do you think also the way they think linear are some of them not seeing how powerful data is becoming because it's easier to access?
[00:21:52] Speaker B: So I'm huge technology fan. I can give you almost the historical impact of data on mortgage. But I'll just give you this anecdote. In 1993, General Electric GE Mortgage was the first hundred billion dollar servicer.
And they did it in hundreds of thousands of square feet of office space. And they were the biggest employer in town and they had thousands and thousands and thousands of employees.
And they did this in multiple cities just like that.
They had an entire floor of filing cabinets that moved on wheels to open up and to allow access into the thousands of files that they had.
Today, with a couple of thousand people that work from home, we're able to handle almost 3 million customers and $650 billion servicing at Freedom Mortgage, a nominal percentage of the population in nowhere near the space in a far more optimized and efficient way.
So not only do we handle those six times the servicing or seven times the servicing, we handle it faster, more efficient and with less errors and mistakes than they could have dreamt possible in 1993.
So when you take that context and then you move it forward, the one thing that really became true is that technology is a tool.
And that tool is generally used to lower cost.
Now you can lower cost in a lot of ways, but it's generally through efficiency and the, the cost that it reduces is incremental because the way we use the tools take a while to learn how to use them to the best of their capability.
So you may have a great tool, but you may not have a great imagination on how to use that tool because the tools new relative to the building you're building.
And, and I think that mortgage is no different than that. And I've seen a tremendous amount of technology come across my desk and into our industry over almost 40 years. And I will tell you that all of that technology has been instrumental in changing the dynamic of how much a person can do.
That's what the tool does, the tool empowers an individual to do more. What the ultimate empowerment is, is to eliminate the individual. Right? So the most you can get to is zero people, right? So the, the ultimate end game is zero people. And then it's hard to get the cost down lower than that. Right? And then you have to start to spread out and get zero people in all those places that you're associated with.
Right? So it's, it's a tool and it's a tool that has limits. And the limits of those tools are really based on the expense that you have to make every month or every day or every week. And you're driving that expense down, but you can't get that expense below zero.
So you have to be able to use technology, not have technology, once you've.
[00:26:08] Speaker C: Taken your expenses down to zero. But of course, before you take your expenses down to zero, you need revenue generating activities and you have a freedom, has a large servicing portfolio. It's one of your, it's mentioned more than a few times in your book.
What do you think about newer products like reverse mortgages, home equity mortgages, DSCRs, non QM? I mean, technology has allowed actually more products with higher yields to come onto the scene, generating potentially more revenue. Do you, do you see them being on the cutting edge and, and seeing that these are viable products even for servicing, or do you think that basically we should stay in agency? In other words, do we not learn our lesson 15 years ago?
[00:27:06] Speaker B: All right, so there's a couple of things there, but here's the thing. Technology can reduce costs. It does not eliminate risk. And that's a really important sentence.
Because your costs are lower, that doesn't mean your risk profile changed. The credit issues that I dealt with in 1985 are the same credit issues that I deal with today.
Cash character, right? Cash flow character and the overall collateral.
And ultimately it comes down to the collateral because you can be more forgiving with income or lack of it, or the relative value of income. Dti, Right. If the collateral is strong, you can overcome any other credit. The credit character. If the guy hasn't made payment or the lady hasn't made payment in the past, if they don't make payment, the collateral is really strong.
Okay, we'll take the collateral back instead of in lieu of payment.
So risk does not change with technology.
[00:28:22] Speaker A: What do you say to those technology vendors that are out at every conference saying that they reduce risk by 10%? Is that just a number of what? There you have it. I, I agree. I think that if it does, I think the market is oversaturated with ideas on how to reduce something that sounds like it's difficult to reduce.
[00:28:43] Speaker B: It's oversaturated with sound bites. That was a sound bite. Didn't say anything, but it was a sound bite. And I will recognize that it's a sound bite. Just doesn't say anything. It's not, it's not meaningful out of context.
And that's, you know, that's the world we live in. We're in a world where narrative is driven through sound bite, but that doesn't necessarily provide you the information to reach a decision. And if that sound bite just happens to support your perspective and prejudices that you already have, that's how that sound bite anchors itself as a data point. A sound point is not a data point.
Right. We reduce risk by 10% of rain. Does that mean it's going to rain 10% less or is it 10% less of a blizzard or is it 10% less of A flood or is it 10% less of regulatory interference in your business? I don't know what 10% is, except for it's a nice number.
[00:29:52] Speaker C: You mentioned toward the end talking about. Now this is before we knew who was. I think I'm just going to assume that you didn't know who the President was when you were finishing the book. So now that we're, now that we have a new president and he's. Instead of asking the Federal Reserve to lower interest rates, he's talking about moving the 10 year treasury by, in some respect. Do you, how does, how, how does that affect the general, how do, how does Wall street, the White House, how do you see that affecting the general marketplace in real estate in the next two years to three years? Because I think that it's going to take some time for all of this to play out.
[00:30:35] Speaker B: Right. So I, I agree with that. Whatever's going to happen is going to take a little while. Right. So that you're, you know, you don't add quick to milk and get chocolate milk.
The reality is that there is a lag effect of any action creates equal and opposite reaction.
That reaction takes time. But let's talk about some of the things that are happening.
I did not expect the new president to come in and lay off a gazillion workers.
Okay. I didn't expect him to get rid of contracts that exist in the federal government that will impact private workforce.
So you have potentially less government and the biggest industry in the country coming into his presidency was the government. If you have a tremendous shrinkage in government, which by the way, last time that happened was when Reagan became president.
And that created a really big recessionary type situation where interest rates fell.
Okay. And as interest rates fell, unemployment rose scarce, property values scarce, properties were bid up and you saw the value of properties rise. And each time that that kind of thing has happened, if we're still not recovering from the last correction and we've gone above the, the, the peak of the previous correction, that means we're planting the seeds for the next correction.
And I see us being in that mode today. I think we're going to see interest rates are kind of high. I think unemployment appears to be rising and we'll gain some momentum rising. And this is new for me because I haven't really, I wasn't anticipating. One of the tools that the administration would use would be the reduction of force.
But that reduction of force will trigger other reduction in force. So there'll be some dominoes fall. I think if they're able to do that in a constructive fashion, I think that we could potentially see. And by the way, this is not in the NBA statistics. The NBA released their forecast and didn't discuss this at all in their forecast. And in their forecast they don't show an adjustment to the labor population that's employed versus unemployed changing very much, very nominal change.
If we got a bigger change than people are anticipating and if the price of oil falls by increasing the supply and limiting the outside supply that can come in and then flooding that supply in an excessive way in our country, we can drive domestic oil prices down and reduce inflation domestically.
I think that would lead to lower interest rates. I think it would lead to lower interest rates, which in turn would lead to higher property values, which in turn would lead to the next correction.
So to answer your question about cutting edge products, I think that as time goes by, those products that are not mainstream.
680 and up. FICO score 45 DTI and down 95 LTV and down.
Full dock in nature. All other products outside of first lien mortgages will be that are private label securitized to drive the liquidity will be at risk of a massive correction. And somebody, they'll be fine as long as the music's playing. But when the music stops, somebody's going to be sitting on their butt.
[00:35:06] Speaker A: That's usually how it goes. It'll be a cold winter. Speaking of cold winter, it's been very cold here in New England. I'm out shovel and pushing snow and I like to listen on audible to this great book right here, Seeing Around Corners by Stanley Middleman. And if for the listeners out there, I'll read this question for the video for the people watching, we're going to put up a question. Stan was nice enough to give out an audio oh two audio credits. So we're gonna give out one to somebody that answers here in the comments section of any of the places. This is the first one to answer. It will get it. I'm going to read it out loud. So when this is released on an audio if anybody comments on that we will.
Those will be the first two to get it. To win a copy of the book. What did Stan originally want to name his company instead of Freedom Mortgage Liberty, Liberate Freedom Liberty or True Freedom.
With that said the question the one quick point I wanted to make so we don't run out of time here is I noticed in your book and what stood out to me as I'm actively pushing buttons in the mortgage industry. I guess I, I found it fascinating. Our industry obviously is very retail driven. Going out there and networking and in those groups getting recruited and calling a lot of shots on what, what they, what they get. I call it like the nil league in college right now and then listening to you throughout it reminded me of what sales used to be and is in many ways that when you were at I think it was Penn Financial, that company, your ability to write scripts, teach them, recruit people in to read those scripts. Start with a team of four, team of six and then how you were able to apply it.
Freedom was amazing with a little bit of a twist where you had people, they get coins and they would get to put them in the pay phone so they could call back so that people in the map could say. But a big part of that was on Saturdays and Sundays and Monday nights you knew that's when you set up the appointments.
It's and it sounds like it's what it is today. So I think does the industry need to get a little bit back to the model of it's in the scripts. It's more scalable that way you can close in this non verbal world with, with that type of approach.
Yeah. So how would that differ than the distributive retail you see where it's networking and lunch and learns with realtors.
[00:37:34] Speaker B: So the realtors have a place in our society and that place is changing.
They provided a cottage industry for the loan originator whose job it was to attach himself to the realtor so that he could get business referred to them through that realtor.
It's an ungainly process.
I don't think that's the way it plays out over time.
I think it will play out that way for a long time still, because things don't change immediately. But as we've demonstrated earlier in our conversations, things change.
And I, I think that the concept of back to the future is better in Hollywood than it is in practice. And I wouldn't spend any time buying rolls of quarters hoping to find payphones and any more than I would spend an excessive amount of time writing scripts and having people memorize scripts today. You know, when we, we do, we were able to do 40,000 loans in a month during a refinance boom.
You know, we're able to put really big numbers on the wall and, and the reason we're able to do that is we efficiently move that data that we talked about around and position that data and what the data users are supposed to say and how they use that data in the most efficient and appropriate way.
We're going to get better at that.
And the relationships that drive activity today probably within five to 10 years will not drive that activity.
And I think that we need to make sure that we understand that whatever place. And by the way, that you can do your own stock brokerage trading. That has not eliminated stock brokers because the value added advice that a stockbroker gives can be advantageous, but it isn't always.
It isn't always and it's not nearly as often as it used to be.
And there used to be way more people that made money and a lot of money. Being an advisor as a stockbroker. There are still going to be mortgage brokers, mortgage salespeople that provide value added by providing advice and support to customers that need it. And that's going to always be true.
However, how often that's true will become increasingly less and the number of people that are as successful doing that will become less. And I don't know. That's not me dictating that, that's me watching that. That's purely an observation on my part.
[00:40:47] Speaker A: I'm in agreement. But Mike, why don't you take us home with the final question of the day.
[00:40:54] Speaker C: I don't know if it's a question, it's a statement with a question. And it's regarding what we talked about off the air previously is when you're looking at other products, we get shiny object syndrome. But you know, when you're a leader of an imb, there's all kinds of products you're looking at whether it's dscr, reverse AGI and we talked about it very briefly.
Can you, can you describe the thought process of what it's like of looking at a product, thinking about a product, doing it and, and then making the decision about it whether, whether you're going to pursue the sale of that product or the purchase that product or not? Can you talk about your thought process behind it? And we, you talked about reverses before the show. Can you, can you go through that again with, with our audience and talk about what you, what you were thinking in the reverse mortgage market and whether you were going to do it or not?
[00:41:48] Speaker B: So I think the context of this is, is really one that we've been living in in a couple of years. We're in a higher interest rate environment, there is less origination capability.
And because of that, people want to expand the universe of the people that they're able to call on who their potential customers are and how can they use their skills and abilities to create revenue streams that are additive to their current revenue streams? I think that's really what your question is.
And I will tell you that historically, and this is something that happened over and over and over and over and over again throughout my career.
What you've just described by these shiny objects or new products or cutting edge products is a widening of the credit box.
In other words, I just talked about the staying mainstream and how private label securitization doesn't really lend itself to a change in the marketplace, particularly if there is an underlying change to the value of the asset.
So when you look at the underlying change in the value of the asset, ultimately everything we do crumbles, right? So you want to make yourself immune to.
If you have a glass of wine, it won't poison you. If you drink a bottle of vodka in an hour and a half, you'll probably die, right? So the point is something that could be good, if you do a lot of it, it could be bad. So if you're doing a crawl walk run approach to these products and you don't have a lot of other income generating activity, that's fine. But you have to keep in mind the risk that you're generating and you don't want to poison yourself.
So I would suggest that you understand the context and the consequences of a change in the marketplace as to the degree of depth you go into these product lines.
So if, for example, you did a HECM at a 75 LTV and the value of the property dropped from 100% by 30%. Now your LTV is 105 or 110, whatever that number becomes, right?
That's a problem because if you were the securitizer of that hecm, you now have a repurchase on your hands.
And if your deal with the securitizer was that you have to repurchase it, you have a problem on your hands.
So these things all trickle down. If you're small enough at the bottom of the pool, nobody chases the little guy that did four or five of these. They may try, but ultimately they'll fail and give up because it's not worth pursuing them. But if you did a billion dollars of these, you're going to get chased. If you did a hundred million dollars, you may get chased.
I, you know, I, I see people, the FDIC is chasing people over that same sort of thing on deals that they've taken back for a couple of million dollars. So it gets down pretty small in size to what they're willing to chase around.
Now, this is from the crisis that the FDIC is still pursuing people after private label securitizations for millions of dollars today still.
And this is how many years later? 15, 17 years later.
So the reality is that you need to consider the risk as well as the reward.
And the story goes that those companies that moved in a big way with the greatest success, you don't know their names anymore.
So the companies that had the most success by widening the credit box and becoming a top firm in that era are no longer in business.
[00:46:36] Speaker A: Well, thank you, Stan. We appreciate you coming on the show today. I hope everybody learned a lot and they can start planning their tomorrow. Big piece of the book is you don't already have your day planned. You're lost compared to where maybe your peers are.
So thank you for joining us on this journey into the heart of mortgage innovation. Remember, every mortgage has a story and we're here to help you write yours. If you enjoyed today's insights, please subscribe, share with your network and connect with us on social media. Until next time, keep pushing the boundaries and uncovering the stories that drive our industry forward.
