We recently reviewed a FOCIS-plus study with board members and management of a small mortgage bank. The overall score was good and we went over the key recommendations:
- Move to mandatory coverage
- Upgrade the LOS and implement a “good file delivery” policy
All of these will improve profits by 40-50 basis points. The board and management understood and agreed with the recommendations. The board passed resolutions all on three recommendations and asked management to move forward with the implementations.
What was interesting about this company was its structure. The board was made up of 7 shareholders, all them producing loan officers of the company. There were an additional 5 shareholders that were also loan officers. Only one of the shareholders was involved in the management the company. He managed loan production. The rest of the shareholders / loan officers were not involved in the day-to-day management of the company; they continued to originate loans.
The board hired a very experienced CEO in 2008 to manage the company. All other senior managers, except the VP of Production, were professional mortgage bankers that had no ownership in the Company. The CEO contacted us to perform the FOCIS-plus study.
The following is the profile of the company:
- 5 company owned branches all within 100 miles of the corporate office
- Retail production through 70 loan officers
- Exceeds GSE net worth requirements
- Modest profits in 2009
- Modest cost of originations and high productivity
Since the CEO came on board, the Company increased profits by 300% and is on a trajectory to double earnings again in 2010. The key was getting someone focused on managing the company 100% of the time. Prior to 2008, the company was managed by a couple of producing loan officers.
Most of the time we see companies owned by loan officers are doing two jobs. One is originating most of the production for company; and other job is managing the company. We believe it is very difficult to do both. The skill sets of originating loans and managing an organization are very different. It can be done and we see many companies generating satisfactory profits. However, we also see these companies have higher loan repurchases, aged loans in the warehouse line and low productivity.
If you are an owner of a mortgage bank and producing loans as well, let us know how this works for you.
