Episode Transcript
[00:00:00] Speaker A: Hello and welcome to another episode 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. My name is Mike Kelleher and together we dive deep into the entrepreneurial spirit which you'll hear a lot about today. Strategic insights and breakthrough innovations that built the world's greatest mortgage companies. So whether you're advancing your career or scouting for industry leaders, trying to get access to the information, or people you see at conferences or just exploring opportunities in fintech prop tech and how it relates to mortgage, you are in the right spot. So get ready to unlock the story behind every mortgage. Let's dive in. I want to dive in with our guest today, Jim Carroll. And Jim has really done the entire spectrum of the mortgage industry. Can you take us to Jim, that point where you wanted to get in the industry and work for your, your father's company, which was very successful and you were top salesperson and he sat you down, what was that conversation like? Was it out of left field when he said, well, first you have to learn how to underwrite if you really want a leadership, basically.
[00:01:18] Speaker B: My father had been running southeast regional mortgage operation banks for a while, was ready to get back out in the independent mortgage banking world because he had saw DU coming on in the mid-90s and said that's going to be a game changer. And so with his relationships with Fannie, he was able to become Fannie Mae's smallest independent seller servicer in the country. And he got said, well, I'm going to need someone to help me. And I was finishing up school, college, going to school full time, working full time, and I was burned out and I wanted to take a couple years off. My degree is in psychology and I was going to go on and get a PhD in psychology, actually. And he said, well, why don't you, if you're taking a couple of years off, why don't you work with me and help me get this thing up and running. So I came on board in 96, a few months after he opened and was there for 23 years until we merged it with a bank out in Nashville, Tennessee. I mean, you know how this industry is. I mean, once it gets in your blood, you just can't get it rid of it. Plus, honestly, I was using my more my psychology degree every day, constantly having to read people, you know, and try to juggle juggle personalities.
But no, yeah, I essentially started out his assistant. Then one day we used to have to physically, I would physically Carol, carry the file down in a binder down to the local bank to our warehouse lender and get and to, to, to to house the loan. And I remember sitting in the elevator and I look over and this kid had a blank 1103 in his hand. And I said, you, are you making a loan application? He goes, I came in and make a loan application. They told me to go fill this out and come back. I said, I work at a mortgage operation. You want to come back to my office? We can fill it out right now. Said, sure. And in 1997, I originated my first loan for Keith Hillerman, Virginia Loan Par. Rate was at 10%. And since then the rates just started going down until of course, as of recent. So then after that I realized, you know, I thought, you know what I saw the money I could make being an originator. I thought, you know, dad, I'd like to be an originator. And he said, well, son, he goes, what do you think your hours are? I said, well, I don't know. We're open 8 to 5. He goes, Wrong. Real estate's not done 8 to 5. It's done after hours on the weekend. And so I went down that road, did become top producing loan officer at Carroll Mortgage, doing about between 2 to 3 billion back then. And my average loan size was close to 150. So it was a lot of units. And that was before ll Comp. So I was making making real good money. And I was walking around thinking my, you know what doesn't sting? And my dad calls me in his office one day and he goes, son, I'm sending you to Seattle, Washington for some underwriting training. I went, well, I, I, I'm, I'm a loan officer. And he got us, well, son, you told me you want to buy into this company. One day said, well, dad, I do. He goes, try walking to the office of an underwriter and tell them they're wrong on the interpretation of a guideline when you don't have the license to do it, you're going to Seattle. So I did go to Seattle and then eventually got in ownership into the company and started taking over management and having to do things. So started basically he'd got and I know what his plan was. He really wanted me to be trained up and licensed as an underwriter, to be in between ops and sales and take the pressure off of him. He could just focus on the major problems and underwriting files if one of the underwriters had a problem. And I could explain everything because that's the Problem with most mortgage operations, the person with the communication doesn't have the time to explain it to everybody. They just say, well, we got to have it. And that's the worst thing a customer wants to hear. They want to know the why.
So I did that with, you know, Carol Mortgage for, you know, we did that for 23 years. And our claim to fame at the lenders1 conferences was that we were in business for 23 years, went through four HUD audits and didn't indemnify a loan, which is unheard of.
[00:05:10] Speaker A: Yeah. In 23 years, that, that four HUD audits really stood out to me because you were at positions in production, secondary management, one of the best dancers I've ever seen. But. And you were always, you were always present at a lot of these collaborations. I think you were one of the first members of. Of Lenders one originally. So people looked at you as a staple in the region you were in, and it seemed you never had the same tech everybody else had. So you guys were working on ways to innovate and differentiate, which was sort of a current theme into today. Where do you see these new technologies around underwriting? Do you think that is going to mean less fathers? Bring in Jim and make them go become an underwriter. Do you think they'll make them become some technologist to take over their company in the future?
[00:06:03] Speaker B: Yeah, that's a good question. I mean, with AI, as y'all know, it's just been a game changer. I'm. I've been consulting on an AI software program that was. Has been. And I had told him, I said, if this thing works, it'll be a game changer. And then they started letting me beta test it. And it is truly some of the most amazing stuff I've seen. I will sit there, upload the 1003, upload the credit report, upload the bank statements, the tax returns, go to the other screen while I'm working on some stuff, and it spits out underwriting finance and what it is. It's truly a highly trained set of eyes coming in behind you. Because, like, I'm. I remember one time I was pulling a file to underwrite, I went, wait a minute. And I already underwrote it. And I went, I didn't look through the software first to see what it flagged.
And the software I'm using is Friday Harbor. I went to look at it and I went, oh, they. There's three disputed accounts. I went, I remember three derogatory disputed accounts. And there wasn't Because I don't care about non derogatory unless it's flagged by a us. Well, I went and looked and there was two non derogatory accounts. One that was closed, always paid like clockwork. The other one of course paid by clockwork. There was no problem. Now it wouldn't have been the end of the world, wouldn't cop, wouldn't have stopped me from getting a loan bot. But everyone, you know, nobody wants to get hit on their knuckles with the ruler and if you get that file gets audited, you'll get rid of for it. So I went ahead and just stepped need to you know, let us explanation on it. So but that, that's going to be interesting to see. I think we're in some very interesting times because I think it's going to allow me as a startup to bring in less back office people to produce a loan which as you guys know, the cost of producing a mortgage now is way higher than it was 20, 30 years ago. So now it's about how fast you can produce it, how you got to get your cost down.
[00:08:07] Speaker C: Yeah, that's interesting that you mentioned that because when I hear about bringing down the cost, the only thing I, you know, the only thing you can really do to bring down the cost is, is reducing the cost through people. Which means that somehow you have to eliminate the checking of the checkers and then eliminating the checking of the checkers. Checker.
Right. Yeah. So pre and post QC and using AI in order to go through the underwriting process, it, it sounds amazing.
How do you think we need to go through some kind of iteration from beginning to end from origination to funding to shipping and then you know, and so on and so forth in the, in the mortgage loan process in order to figure that out and vet it all the way? I mean did you just start doing, doing that vetting out of the AI and the software for that?
[00:08:55] Speaker B: Yeah, I think, if I understand you correctly, I think it, it's good to have it on the front end due to the fact it's like I told the, as a consultant, I told them, I said hey guys, your, your software can do way more than what you're thinking of. And they said well, what do you mean? I said well I can give you these income calculation forms. You could, I mean your system should be able to see, let's say the borrow $2,000 a pay period. They're paid twice a month. Well that's, let's see, you know, essentially if they were paid $4,000, that's going to be what, 48 a year. So through June, year to date they should be at half that number. And if your year to date isn't matching up what their pay period is, your system should be able to flag that as a stipulation that that needs to be investigated further. And they said absolutely, we could do that. And I said, because those things are easily explained but usually not caught till it hits the underwriter's desk. And now you're trying to verify if there leave, if there's been a raise, things like that, which cuts down on noise and that's the main thing is the less noise on a file, the better the customer experience is, which is going to get you more referrals. And that's what this business has become about.
[00:10:05] Speaker A: You've built a name brand, a reputation, a really, a last name in your community.
We always talk about tomorrow's leaders. Start as local mortgage companies today, what type as you're building a company for a bank and you look at the next great IMB, probably with 12 people right now, what advice do you give them about building name brand in the community?
[00:10:33] Speaker B: Well, that's key and that's one of the things. When I came to this bank with the proposal and was talking with them about building in the community, I said, look, I said Everybody wants to $750,000 loan, but there's the guy out there trying to get the $75,000 loan that lenders won't deal with because they don't economically, it doesn't make a lot of sense. But our, ethically we are, we should be helping those customers because in that the more you help in that community, the better your name gets out and the better it helps you spread throughout the community as being very reputable, knowledgeable and an all around great mortgage operation. Because yes, you're catering to the top creme de la creme which everybody wants, but you're also catering to the, the underserved areas which desperately need it.
[00:11:22] Speaker C: My first comment when you say that, by the way, I'm in California and so we specifically in San Diego where, where you have a lot of $700,000 mortgage loans.
[00:11:32] Speaker B: Oh yeah. Oh that's, that's the bottom of the barrel for y'all.
[00:11:36] Speaker C: Yeah, yeah, well, yeah, yeah. The median price for the area I live in is over.
And but when you say that everybody wants seven hundred thousand dollar loan, the first thing I think about with the larger loans is that the customer typically also is price shopping you as well. So when you say that the, the lenders don't want to do the seventy thousand dollar loans. I'm thinking they're pro, they're, they're going to be price shoppers no matter what, no matter what part of the sector that you're going to be in. But I think there's less shoppers because they trust more in the originators.
And so my, my question and comment is, is it for where you are at there on the east coast, Southern east coast? I'd say. Are you. Because of the AI?
Yeah. Okay. Well, yeah, even better. Do you think you can create more efficiencies and more profitability per, per unit then as a result of your AI? And whether it's a $700,000 loan or a $70,000 loan, it actually. Could it be more profitable in what you're doing today?
[00:12:37] Speaker B: I believe so, yes. Because once again, all these technology softwares coming out, whether they're using AI or just as technologies that were already there, essentially what you're seeing is it's allowing you to streamline the process and who all is involved in the file. And then the other thing is, everywhere I've been, I've always thought you need to run a mortgage operation the way that my family business was run. We, a lot of people, the mortgage business, believe you need to be a widget maker. Essentially you're a processor, you're an underwriter, you're a closer, you're the loan officer, you're qc. I believe everyone should be cross trained for several reasons. Number one, it gives you to be in the. Anytime someone's come to me about wanting to become a loan officer, I say I would learn the back room first because then, number one, you learn noise in, it's noise out. Number two, you also get appreciation of what they have to deal with.
But when you cross train, you have the ability to start divvying up things and not have to bring more people in. But more importantly, what I was very proud of that we were able to do at Carroll Mortgage is to rarely ever have to lay anyone off because you don't during the, when the volumes pick up, you just pay the overtime. You've already got the staff that's highly staffed, you get it done. But that way you don't hire just to handle that volume, which everyone was hiring and everyone was looking for people in 2020 and 2021. But, but that way you don't have to do it. When it slows down, then start laying people off because then at that point you can start stretching things out and say, hey, I need you to start focusing on this task or this project and with that cross training it helps. Or worst case scenario, if you have someone just up and quit, not give you two weeks notice, you've got someone that knows a little bit about that department.
[00:14:32] Speaker A: I've always admired your ability to incorporate, or I should say just capture everything that a traditional mortgage lender has. The appreciation of underwriting, the appreciation of branding and local community, and the appreciation that every mortgage does have a story. And you're one decision away from making sure that you didn't make a fraud or, or a bad loan. But you're also one decision away from helping a family build generational wealth that compounds and maybe would have been too big of a barrier if they didn't run into you for the, for the occurrence.
[00:15:14] Speaker B: No, I totally agree with you. In fact, one of the things, number one, always told people, I never told anyone, I can't do a loan for. I've always said I can't do a loan. Now here's what you need to do. And then come back at this, on this time frame because you ethically, you don't tell someone, you just can't do the loan. You need to tell them what they need to do to become a homeowner in the future. Because sometimes you got people that are coming in, they don't, they can't buy a home. They just want to know what they need to do to be able to buy one in the future. Or better yet, you got one. Like, I'll never forget, there's a very large hospital system here in Arkansas throughout the state. And the head of the home human resources department who was making about 300,000, not 300,000 a year, but she was making really good money. And she came to me, was referred to me wanting to buy a home. She goes, but look, you know, I have an ex spouse that pulled me into a bankruptcy and I know I can't buy anything now and I'm gonna, but I want to be able to buy something for my, my daughter and I in the future. I said, well, wait a minute, was it, what type of bankruptcy? Was it 12 or. Excuse me, I found out. I said, are you sorry? Somebody was walking right outside my window and was trying to wave at me and caught me off guard. But no, I said, are you in a payment plan? She said, yes. I said, have you made 12 monthly payments? She said, yes. I said, what's the payment that you're paying? She gave it to me. I looked at the numbers. I said, you can totally buy a House. Now, you just got a bankruptcy court approved. We can take you fha. And she was tickled pink and she bought a house for 300 something thousand dollars. So I mean, it's a matter of trying to make sense of things for people. And one of the things I've learned about with underwriting that I'd really appreciate for my father, what he taught me was rule number one of underwriting, throw away the credit score. It's not worth paper. It's printed on. In fact, the last year that I was underwriting under the Carroll mortgage umbrella, I remember I denied a sick. I approved a loan that was at 580 and I denied a file that was a 666. I remember that because the number of the beast. But here's the difference. The borrower with the 580 has great credit scores. Excuse me, great credit history except for two delinquencies in this year. And we are now that credit report was like in September. He had two delinquencies ever on his report, but they were that year on a new account he had just opened. Credit explanation letter said, I opened up a new account. The first payment I made to them, I didn't know they waited 10 days to draft my account. So I was insufficient funds when they drafted it. And I didn't know that was our policy. So the second time it happened and he stated the month, it was like May not. He goes from there on, I quit paying that way. He'd been. He'd made payments like clockwork since then. But more importantly, and what I always care about underwriting is based on does the borrower have the ability and the willingness to make the payment? I said I want a verification of mortgage or rent. He was paying $300 more than what our mortgage was going to be with no delinquencies for the past 36 months.
Does he have the ability and the willingness to make the mortgage payment that's $300 more than his rent? Well, yeah, clearly. More importantly, he was straight salaried. Now, the credit score was crap. In fact, I even took it to a couple other underwriters. I said, no, that credit score is wrong. But the credit risk analysis of the borrower is great. Now the 666 score. 666 score. Truck driver most recent year workers comp decreasing income. Not 20% but it's decreasing the other thing. Housing shock. His housing payment was going up $1,100. Now, which loan do you think's a better deal? If you take away the credit score.
[00:18:49] Speaker C: The 580 I mean makes sense underwriting for the. Depending on who you are, you the three or four C's of lending, right? Credit, collateral, capacity to pay and sometimes character. It makes a lot more sense to stick to the seas of lending rather than hey, let's see if we can fit into this box. Speaking of the box then. So why would it make sense today to be a mortgage startup when the, when in the past we had seen negative profitability from the average IMB to today where still there's some hope on the horizon. So why would somebody who's a smaller, maybe a broker want to, want to say I want to be an imb or why would you start one up just as a generality today, can you go deeper into the mindset so that if you're an originator and you're looking at well I could do this on my own or I can go to someone who's doing a startup, but I want to get paid. So how does someone look at it from, from an originator standpoint and from an owner standpoint?
[00:19:48] Speaker B: Well, from the owner standpoint, the bank realized this is a good time to start it up because of the fact that you've got, you can pick up people on the cheap because there's so many people on the street essentially on the plus also the, the banks of the mindset eventually rates will be going down which will bring a little bit of a refinance market there.
Then in regards to an originator, why would you want to go to a startup? Well, I mean, so I'm just now starting to bring in because I, I didn't go live with the mortgage operation until fourth quarter and I've, I've told them, I said this has got to be a crawl walk run. There was a true mortgage startup, Alabama and here were both true startups. They had no HUD lender id. So I said I'm going to have to do all your policies, procedures, get the HUD lender approval, got to get the va, get usda. I'm going to have to get, there's no loss. So I've got to get that set up. And then I mean it is a true startup. I said so once it started up, then I'm going to be going to run a few loans here and there and find the problems and fix them so I can close loans and make closing deadlines. Because if you've got a big huge pipeline, you're not going to be able to do it. But more importantly, if you start bringing in producers and you're having a problem closing their loans. Well, you guys know you've only got one shot with production with loan officers. If they you're not closing your loans, they're going to walk right back out the door and they're done. They'll never come back again. So I'm just now wanting to start, to start. We've already been walking. Now I'm ready to start jogging. So I had an interview with loan officer yesterday and that was the thing I told her. I said she was talking about maybe going to a bank here that's established that has a mortgage operation. I said, well, the startup here, I said, you get to deal with me. And I said directly. I mean I've said I was on the phone the other night at 8:30 at night explaining to the selling side how to structure the deal to get the deal worked out to make it work. And she sat there and said, well, very smart lady did ask this question, well, how are you going to do that when you grow it? And I said that's a very good question. I said, well, I'm starting out from very, very small and growing so I'm able to train people the way I want them. And in fact, the person I brought in for closing, who's been a closer for over 10 years, finally one day goes, jim, I finally figured it out. You're not a micromanager. You're just wanting me to train the way you want it done because it's the right way. And the reason why she said that was the first two cases we had with HUD went through hud.
They pulled it and under underwrote them, endorsed him in less than 72 hours. And then the person that's assigned to us even said, hey look, these were really clean files. Y'all are doing a great job. So she, she sees the reason why I want it done a certain way because it, if you do it the right way, unless there's fraud, you're not getting that loan back.
[00:22:46] Speaker A: Is perfectly, I think the perfect story for how you start to build and execute, especially in this market. And you don't get over your skis and want to be somewhere where you're not yet, which some tech vendors do. And I'm, I think Mike has a good question on the other side of this. Quick commercial break from our vendors and we appreciate Mortgage Connect and their ability to deliver, especially since they control a lot of like the last thing a customer remembers that Closing Table and ADM software, which is a emerging tech because they've already been established with their ability to handle data in ways that others can't. A lot of people have been jotting down that name. So let's hear from our sponsors quickly.
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[00:24:53] Speaker C: Awesome. Jim, when I, when as I listen to you speak there's and if I'm coming to you as a recruit when originator and and put it into context, I don't think that the average originator actually knows how to ask the right questions based upon your experience.
And I think I say that because number one, you know what? Through four audits it didn't have, didn't have any issues. And so an originator comes to you, goes and all they're concerned about is really getting paid. But then when I listen to you in the second half of our interview, you're talking about the seas of lending credit collateral, capacity to pay in character and, and then you can sit here and go wait a second, you know as a recruiter, maybe we're a younger origination shop but let me tell you something, I've been through four audits and on, on top of that as inexperienced as a leader and on top of that we, I also believe in make sense lending. I don't think the average originator actually knows how to do that how do we convey that to the, any other, to any other originator that doesn't necessarily know who you are or when, when you're going to be expanding from the Midwest into either the left or the right coast? And, and as you go through expansion, how do you convey that as the message of your background and not just the bank itself because your leadership can, can actually take leaps and bounds to another originators not only in units and productivity and also in an improvement of the quality of the way they also do business as well. So how do you do that and convey that message to the originator?
[00:26:24] Speaker B: Well, to the original I'd always tell them that like if, especially when they're, like you said, they're a new originator. Well guess what? Most realtors do business people they like. Now once again, when they give you a contract, they're giving your paycheck, they're giving you a paycheck, they expect you to cash it. Now Realtors are going to do business with people they like but more importantly they're going to test you to see what knowledge you have. They're not going to expect you to know everything is what I tell them because you are new. They're going to see how quickly you can get them from the answer they need. Because that's where you can tell a difference in the mortgage operation at the loan officer's app is how quickly they can get the information from the person who has the answers that makes a difference. And that's where I've always, that's why I still, even though I'm employed by a bank, I still treat it as if I'm self employed.
Last year in 2024, I came on board in April of 2024 to start this thing. And then in every every, I worked every holiday and every weekend to get it up and running just because I have that work ethic of, of being self employed, I've been assigned this task, I gotta, I gotta complete it. But in fact I've told under loan officers the main thing is how quickly you can get the answer and how, how much support you have from that. From the senior staff. I've actually taken on 2 Thanksgivings Loan applications for loan officers who are unavailable just because from being self employed I know you got to strike when the iron. Well, excuse me, from being a loan officer, I know you got to strike when the iron's hot. Not only that, if someone's writing an offer on Thanksgiving, they're not wasting your time. You know, if they don't buy on that day. But they're going to be very impressed that you took the time to help them on that day. So that's the main thing is to try to find out when you're inquiring as a loan officer about different shops you want to go to go in with some questions and see how quickly they can get you those answers. Because typically you're not going to be dealing, you're going to be dealing with a sales manager. So I would come in with some hard cases of what how would y'all handle this loan or this one? And see how long it takes where they can get back to you with this is how we would structure it. Here's what we would do. Because communication to me is key to everything.
And that's why, like I've told people before, in fact I'm. When I was talking to that seller side, I told you all about the other night at 8:30, I told the buyer's agent, I said, give me a letter from the borrower saying I have full access to talk to the selling side. Then I got the seller on the phone and I explained everything because then it's not the underwriter telling the processor who's telling the loan officer's agent or to me, the, the, the borrower's agent who's telling the seller's agent who's telling the seller. It's coming straight from the underwriter. Hey, here's the problem. Here's how we can fix it if we do X.
[00:29:09] Speaker A: We appreciate a little segue there of being able to talk a little turkey with you, Jim. This is about coming on two, two and a two full years now of doing this every Thursday live at 2pm Eastern. We haven't wavered on it except the two Thanksgivings we've taken off. Next Thanksgiving we'll have you host the show for us. We appreciate it.
[00:29:28] Speaker B: There you go. Well you've ever had.
[00:29:32] Speaker A: It'll be the most viewed, that's for sure. And if you like this, please give us a like a subscribe on our YouTube station. If you're listening on one of our audio podcasts like Spotify, Apple, Amazon or anywhere else, please give us a like as well. I want to segue into one current event while giving you another compliment, another flower as our guest.
I think our industry gets very trained because of the way Fanny and Freddy's DU system is set up where it's almost gamified to try and get somebody qualified almost. If you were good at video games growing up, maybe you can get into this. D U p Put in the right info and try and get that approved, eligible. And then if you have a culture that's built on sales and leveling up, it's about how many can you get in there, how many can you get approved, how many can you move? And I think the further you get away from the fact that these are serious vehicles very regulated by the federal agencies, if you're going through it and you can lose sight of some of the penalties that go along with it, what type of game you're playing if you don't have a leader like Jim Carroll. So when HUD tweeted out just a couple hours ago that they are now going to be looking at occupancy fraud which if you followed us, Michael Zhao and his family office of 1031s and verse 1031s and fix and flips has been talking about careful of these 203ks as potential occupancy frauds for a long time now. Nobody in particular, but I could see somebody playing that game trying to get the approved eligible and losing sight on the big game that they're playing, the big purpose that they're playing. So I appreciate how you do that. Jim, what advice would you give to lenders maybe seeing that tweet on anything they should react now or any new culture initiatives they should do as a wake up call moving forward or in.
[00:31:32] Speaker B: Regards to occupancy fraud, the fact that I don't.
[00:31:36] Speaker A: It's been a while since the agencies have come out and said something as alarming as hey yeah, I, I think.
[00:31:43] Speaker B: That what, what you're starting to see over the last few years there has been fraud for housing and because of that, in fact I even knew someone that told me that that's basically what they did. Luckily they didn't use me as their lender, but they actually had someone that was a friend put them on salary at their office just until they got the loan approved and then they went back to their regular self employed job.
How do you combat that that you can't. I mean you're, you just, it's about risk analysis. I mean essentially you're taking a gamble on someone that's newly employed. You're going to be doing that in regards to risk for occupancy. You're just going to have to look to see if, if there's anything there that doesn't make sense. You know, that's the only thing you can do.
[00:32:34] Speaker A: But I think as a culture you may be putting in some places where you get rewards as a Loan officer for spotting fraud. Right. Like very few places. Instead you just lose out on that. Maybe you're one deal away from going to President's Club. Right. And, and maybe just a little bit of an extra pat in the back. Like we know you could have tried to get it into Fannie Mae. Good job asking the extra question because I'm sure a lot of these could be figured out if you asked one more question. Right?
[00:33:02] Speaker B: Yeah. And I agree. And that's what, like if you, if you know your loan officers, you can, if it's a manual underwrite, I would always call them in. If I, if that was a real if you feeling on it, I'd call the loan officer in and I'd ask them, I said, do you think they'll make the payment? And I actually had some loan officers go, no, I don't think they would. You know, I mean, that's why it's important to try to. And that's, that's what I remember when I was starting this up and I was trying to look at bringing somebody on it for a position. I needed someone in the bank goes, hey, do they have to have mortgage back experience? Mortgage experience? I said, absolutely not. I said, I want to train people. I don't want them to already have bad habits. I said. She goes, well, what do they need? I said, a moral compass. Business ethics and the ability and willingness to learn. I can't teach those. And I mean, I can train anything else and I can work with anything else. That's why it's very important to the staff you got. I mean, they're, I mean, and that's why when you're vetting, you're bringing on a loan officer, you want to maybe check with your real, your realtors in that community if there's a reputation with that, that loan officer. Because what you'll find is there are some loan officers that maybe a top producer, but if you got a good trusted realtors that market, they'll say, stay away from them. Yeah.
[00:34:16] Speaker A: And if I can jump in one more time to take this question from you, Mike. But people say, where are the loan officers going? Like, you know, they could be replaced. And look at all this new AI like you're talking about, Jim. And you can train AI to stop fraud. You can, all the bad actors can also train AI to trick the AI that's stopping the fraud. I attended a. And I know the CFPB is sort of suppressed right now, but next person up, when they were asked on stage at the New England conference, what do you guys think AI? They said we're, we have no comment on it other than. And we're all for it other than if your AI makes a decision or chat something in a bot, you will be under the same penalties as if a borrower. I mean as if a person chatted or made that decision. So it's something to consider if you went all digital AI and AI couldn't pick up on that fraud, that could end up going back up to the owner who put in that software. I think that's going to be a finger point in the future.
[00:35:14] Speaker B: That's why you, that's why I don't believe you're going to replace a lot of the jobs. I mean you're always going to need the, the person, a physical person to do analysis sometimes. Like you said, software programs can be tricked.
You know, for example, you typically, you know if you get to a certain ratio on conventionals, it's automatically going to flip to a refer from an approved eligible. So you know what you got to do to try to make that work, things like that.
But yeah, I mean that is the truth. With all the technology out there, it can be scary to try to put all your faith into it. I've never ever trusted computers completely.
[00:35:56] Speaker C: Yeah, I was speaking to an originator in the Midwest about a year and a half ago and he said, hey Michael, if you have a.
He just told me it was a high, high debt to income ratio and so on and so forth. He goes, you know what I did to fix it? I said, what you do? He goes, I changed the race and national origin to X. You know, to. I don't want to promote bad behavior. And then guess what? Because I changed the race, national origin, gotta, gotta approve eligible. I say, you're kidding me. Show me, show me, show me how you did that. And he said, so he showed me to walk me through the steps and just through Cha. And this is. He was a certain. The, the bar was a certain race. Changed it to another one. And I'm like, and sure, sure. As night turns today and day turns tonight. Approve eligible. I couldn't believe it. And when I see things like that, it just, it's amazing. I, I can't even believe that I would never even thought of doing something like that.
[00:36:51] Speaker B: Oh, whenever I would underwrite a file a lot of times I'd look to see how many DU submissions have been done because that means they're just doing anything and everything to try to get it approved, you know, so then that's when you're like okay, we've got a gazillion submissions. I'm going to have to look for some landmines here.
[00:37:09] Speaker A: And I think that's part of like where the world's going when you. That's what I was trying to say earlier when the old way. And if you want to take us down memory lane, Jim, you can but you know, you'd be a big stacks of files, signatures that tells you it's important when you're clicking. And then almost like playing the game meaning it spins and says yes, no, yes, no. Your mind accidentally goes back to games you grew up playing on the iPad. I'm talking about the younger ones. Right. And if there's no real human element, there's no paper, there's no signatures involved, I think and no humans. You know, I think that's a pressing point. Why we might go a little bit this way and then almost even if it's a little more expensive to produce alone, have to get humans back involved. To remind everybody these are serious instruments backed by the federal government and important in cultures like yours, Jim. That's why we wanted you on here to remind everybody you can have forward facing tech and why people reach out to you because it should be underwriting first. But at the same time you need an old school culture that appreciates what a mortgage note is.
[00:38:07] Speaker B: And yeah, and to address what she mentioned earlier about how do you deal with to prepare yourself for that fraud, potential fraud for occupancy that I just make him made a note of today. It might be a case that you may want to have your fraud document. You know, that's punishable by a million dollar fine and 30 years in prison separate from all the disclosures you send out. And that way your loan officer goes, hey, you know, you signed all these disclosures but I want to make sure you understand this one document here. And because there had been times where we had a borrower that we thought was committing fraud and would go over with them, hey look, you sign this one initial disclosure states that if you commit fraud you can go to jail up to 30 years and up to a million dollar fine and boy, they would start telling you the truth right then there when you'd point that out. Because you know when they go through all those disclosures, they're not looking at them. I mean you can send 50 plus pages of disclosures out for E signatures and they'll come back in a matter of minutes. They didn't look at anything, they just click, click, click, click, click, click, click. But if you point that one out to them real quick, I think that will put a very strong emphasis on don't commit fraud on me.
[00:39:23] Speaker C: Is there. Do you think that working for a bank, it's, it's going to be easier for originators with you at the helm. Instead of looking at you as an actual FDIC insured bank, they're going to be able to look into as, as if you're an imb, which you are, I guess, on an actual basis, independent mortgage, FDIC bank banker. Do you think it's going to be easier for the originator to come to you and say, you know what we're going to do make sense lending as an fdic, FDIC insured bank? We're going to act like an imb, except you're going to get the same service as an imb, even though we're with a bank. Because if you go with an FDIC brand name, you're going to be in a little bit more, maybe a little bit more stringent in the guidelines with the what, whatever, and I forget the name of the, the federal group that, that legislate FDIC insured banks. But you know, you're going to have some underwriting issues as an originator. And I think that, you know, you're gonna, Are you guys going to be doing some DSCRs and non QM also as a part of your bank?
[00:40:26] Speaker B: Well, first off, I told her I, I'm not going to be doing any non qm. All that is to me is subprime all over again. They just changed the name of it. Not to insult anybody in that business. But number one. But number two, typically I don't like files that I don't underwrite because when it goes out of the office, everybody's always beating you up, wanting to know what the status is and everything. But non QM, I don't have a real big taste for DSCRs. I'm not doing them yet, but I probably will be because Fannie and Freddie have really pulled out of the investment market. So, I mean, it's, I need to look into that. But in regards to the FHA, VA, USDA, Fannie and Freddie, I'm just, I don't have any overlays. I'm underwriting to what the agency guidelines are. That's what got me through the four HUD audits was I didn't have any of these. I just wrote to the agencies and then they would come back and say, well, why did you do this? And I would say to hud, I'D go, show me in your handbook where it says, I can't do it for. Or for example, I remember on the. Like, on one with one of HUD's audits, they came back, they said, we see that this was a manual underwrite in that section such and such of the handbook, where on that it says, there's three things required. I went, huh? I'm an underwriter, and I don't require all things, all three things being required. So I reply back, I go, you are correct. In section such and such, on page of the handbook, there is three bullet points. After bullet point number two, it says or not. And big difference in that one word. And that's what I try to point out to loan officers. It's about the word. And you need to read things because a lot of loan officers don't read the D.
And that's very important. Now, sometimes, don't get me wrong, the DU finds will just direct you to the selling guide of the handbook. But. But sometimes there's verbiage in there that you can catch right off the bat that is an issue that you didn't address right then and there. Like, for example, one of the things with this software that I'm using from Friday Harbor, I was like, are you able to flag when the credit port's about to expire? And they said, well, sure. Why, why does that matter? I said, well, I can't tell you how many times I had a loan officer walk in my office and go, got a slam dunk deal, got the contract, locked it in. I said, well, you didn't read your DU findings. The credit report expired a month ago. You're gonna have to pull new credit, new credit, hope you even have a deal. And then on top of that, see if we can still keep the price in there. So it's a matter of reading those things. That's the key.
[00:42:55] Speaker C: If you're an IMB leader and you're listening to this conversation, you know, one of the issues has been when the agencies come back and say, you got to buy this loan back, and you go, wait a second, this follows DU guidelines. Do you think that with the type, with the way that you have trained your operations staff, is there a. Is there a more efficient way for IMB leaders to look at their operations and say, this is how you can reduce or mitigate the amount of buybacks from the agencies in the way that you have trained or taught your current operations staff so they can reduce those buybacks from the agencies?
[00:43:32] Speaker B: Yeah, with the buybacks, with the agencies. The main thing you've got to make sure is just because they're coming back telling you something, you may want to make sure that they're asking the right questions. And don't just assume just like HUD was wanting me, they were wanting to get. They're going to want me to identify that loan because I didn't have the three things. But I went and looked it up and said, oh wait, you're wrong. I don't have to have all three. I just got to have one. The other thing is is documentation. Documentation always keep it. You may not deliver it all to the investor, but if it comes up later on, sometimes I'll tell people I want X, Y and Z.
I don't need it for the file per se, but later on down the road they may want it and I want to have it in file in case we need it, you know, because sometimes they'll or for example I had one. I'm a notorious pack rat. I keep every. When I was an originator, I kept everything and I remember after the subprime meltdown Citi around 2011 or 12 came back what must have to buy back alone because there was not a bank statement for that file from 2005. Guess who had documentation that said file from 2005 and had that bank statement.
[00:44:43] Speaker A: You. Gen Z does not pack rat, but you're, you know, one for the Gen X, one for the millennials of the world. The, the, the last pack rat generation. I I have a final question because I know we're running up on time here.
I'll call it just for any listeners out there. I don't plug it very often but adopt the brand is my company. It's a door opener matchmaker for any mortgage vendor that the lenders maybe don't know about. Making those introductions to people like you see our guests on our show looking for fintech prop tech new stuff especially top of the funnel with large customer bases would be cool. I plugged that because my question actually has to do with that and the vendor startup, lender startup or not but the vendors let's do this one. The vendor startup and then the Jim Carrolls of the world that would love to help everybody but obviously doesn't have time to help that dance. Right. You've been in this dance.
What would you recommend to I guess both sides of where the dance makes sense and where to look out for pitfalls or where it's okay to to maybe separate ways when they start stepping on each other's shoes and usually that Is you think a launch is supposed to be in 12 months, now it's 18 months, now it's 24 months. And where does a lender want to be ahead of it and bet on something coming out and then where are their pitfalls of kind of betting and dancing too long. Dancing to that Evan song by Brian Adams like where it's a nine minute song and you're like I didn't sign up for this dance.
[00:46:27] Speaker B: Yeah. And that's if I understand your question correctly, dancing with a new startup vendor. They just got to be, they got to be honest with you. When I was starting up mortgage operation in Alabama, we were approached by a, a new LOS system and they wanted us to help consult on it. Well and help them build it. We were meeting with them twice a week, going over things, giving them input, insight and they kept telling us, okay, we're going to be ready by this date. We weren't ready and it first started out we're going to, they're going to be ready by the summer.
And then, you know, then it was going to be September, then it was going to be November and kept going on and on. It's a matter of being realistic in your expectations and telling people what you really believe you're, that you can do.
[00:47:17] Speaker A: That was a great concise answer. Longer than, I mean, shorter than my question.
Mike, any final questions? I know you underwrite some, some deals for your family, for the family office. So you have an appreciation for our guest today. But any final thoughts here or.
[00:47:33] Speaker C: I don't necessarily have a question. However, Jim, just like Mike said at the beginning of the show, for audits, no buybacks, collateral capacity, character credit, makes sense. Underwriting it. It all resonates with me not only as someone who goes and buys mortgage loans, but also as someone that, that wants to reduce the amount of buybacks and litigation and every single mortgage loan. And when you put that together with your track record and, and taking into consideration that and you're saying right now is the perfect time to start a mortgage company. And when you start a mortgage company and set it up right and put it together and say I'm going to reduce the amount of fraud, I'm going to reduce the amount of buybacks and this is how I did it over the last 30 years of my career, not only is that an accomplishment, it says something to how you're starting the company. So it has longevity, longevity not only for the company that you're starting and also for the originators who are coming into a system that is has already worked as you're starting to put it together. So Jim, thanks very much for not only giving us the history but also the mindset and the thought pattern behind that. It's impressive that you can not only do that in the past, however, and also put it together for future, not only for the bank itself but future originators who do come into your presence into your system and also for their for the improvement of their origination processes as well. Thank you so much.
[00:49:03] Speaker B: Well, thank you gentlemen. I greatly appreciate y'all. Let me share my story with you.
[00:49:08] Speaker D: 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.
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[00:49:25] Speaker D: Until next time, keep pushing the boundaries and uncovering the stories that drive our industry forward.
