Mortgage Professional America by Key Media

G N I H C N A R B MPAMAG.COM ISSUE 8.1

T U O

S W O H D N A RK S Y WHNETWO E TH CH O T E BRAN D A I U GA HBI HE END S G I T R IN MA ISN’T T RLD U O N M Y JOI WO HY QF THE F W O O NS

ONSHE NEW I T U E SOL TE T AP QM AVIGA ANDSC L TO NATIVE W HO GISL LE

EAR F AN T S GO NN GLE MAKIN Y ICON THE DUSTR IN

NEWS / FORUM FORCES

002 | MARCH 2014

MPAMAG.COM

FEBRUARY 2014 | 1

CONTENTS

MPAMAG.COM

G N I H C N A R B

E H T E TOWS OF D I GU D HO CH R U YO YS AN BRAN WH ING A JOIN WORK NET

T U 22 O

INDUSTRY ICONS

GLENN STEARNS The making of an industry icon

NEWS

BUSINESS STRATEGY

6 | Forum forces Comments from the MPA online forum on the big news stories

48 | Client communication: digital vs analog Where old-school communication fits into a digital world

7 | News analysis The key trends affecting originators

52 | Data artistry How to find business value in data 56 | The (r)evolution of management Why you must engage your team on a whole new level

10 | The data Must-read statistics for mortgage professionals

60 | Presentation skills Wow colleagues and clients with your performance

14 | News analysis in focus Is ‘broker’ a dirty word?

18 | Head to head Mat Ishbia explains why QM isn’t the end of the world

FEATURES

QM SOLUTIONS How to navigate the new legislative landscape

2 | MARCH 2014

COVER STORY

Branching out Your guide to the whys and hows of joining a branch network

MORTGAGE INSIDERS

62 | A day in the life of... Chad Jampedro, president, GSF Mortgage Corp 63 | Favorite things Scott Gordon, founder and CEO, Open Mortgage

MPAMAG.COM

COME IN FROM THE STORM. As a tumultuous storm of regulatory changes and contrained economic conditions has forced countless lenders to close their doors in recent years, Academy has quietly found ways to thrive, yielding both record-breaking volume levels and Loan Officer growth.

“I came to Academy Mortgage for several reasons, one being the unique culture of the company. It’s a culture of professional and personal development that helps me become my best self. As it relates to the business, Academy’s leadership is committed to providing support without taking local fulfillment away and understands that regions have different needs that require different solutions in each of their markets. “Academy leadership is also committed to my personal growth through a variety of careerdevelopment initiatives. Whether it’s an opportunity for me to focus on achieving a better life balance or an opportunity to contribute towards international service expeditions and community-based projects, Academy gives me and my team a way to make a difference here and around the world.” —Brandi A.

Find a safe haven at Academy Mortgage for growing your career long-term. Contact James MacPherson, Executive Vice President, at (801) 568-4716 or visit www.academymortgage.com.

FEBRUARY 2014 | 3 Corp NMLS #3113

EDITOR’S LETTER / 8.1

MPAMAG.COM

BRANCHING OUT There are numerous business model options out there for originators, and it can sometimes be hard to assess whether you’ve taken yourself down the right path. In this issue of MPA, we revisit the branch model and discuss the benefits that operating under the umbrella of an established operation can offer. One such benefit is the compliance support these organizations can offer to brokers working under a branch structure. With the new QM rule having come into effect, compliance has become that much more complicated for originators, and many are seeking answers to the problems that QM poses. With that thought in mind, team MPA has gone in search of these answers, quizzing providers of QM solutions for their thoughts on what the QM rule really means for originators—and how they can make sure they’re not running afoul of the CFPB. We’ve also spoken to industry stalwart Mat Ishbia, president of United Wholesale Mortgage, for his thoughts on QM, and whether it really is the end of the world for originators. Speaking of industry stalwarts, our profile of Glenn Stearns—the first of our new Industry Icons features—provides a fascinating insight into how this legend of the mortgage world went from a dreamer sitting on a park bench to the leader of a lending organization that hit the $13.3bn mark last year. And if you’re dreaming big like Glenn Stearns, then our business strategy features towards the back of the mag could be just what you need to take your business to the next level.

Robin Christie, managing editor, MPA

COPY & FEATURES MANAGING EDITOR Robin Christie JOURNALIST Ryan Smith PRODUCTION EDITORS Roslyn Meredith, Moira Daniels

ART & PRODUCTION GRAPHIC DESIGNER Red Redrico DESIGN MANAGER Daniel Williams

SALES & MARKETING NATIONAL SALES MANAGER Cathy Masek MEDIA SALES MANAGER Chris Brezsko COMMUNICATIONS MANAGER Lisa Narroway MARKETING EXECUTIVE Anna Farah

CORPORATE

CONNECT

Contact the editor: robin.christie@ keymedia.com

CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial inquiries Ryan Smith ryan.smith@keymedia.com Advertising inquiries Cathy Masek Cathy.Masek@keymedia.com Chris Brezsko chris.brezsko@keymedia.com Subscriptions subscriptions@keymedia.com Key Media 7807 E Peakview Ave Suite 115 Centennial CO 80111 United States of America tel: +1 720 452 2600 Offices in Sydney, Auckland, Toronto, Manila mpamag.com Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as MPA magazine can accept no responsibility for loss

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4 | MARCH 2014

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* Mortgagestats.com ** http://www.ocregister.com/articles/inc-379459-orange-services.html *** http://www.nationalmortgagenews.com/mortgage-technology/2013-top-tech-savvy-lenders-and-servicers-list-revealed-1038346-1.html † http://www.insidemortgagefinance.com/issues/reports/top_mortgage/Top-Mortgage-Originators-3Q13-1000025023-1.html Stearns Lending, Inc. offers many loan products. Contact a Stearns Lending Representative to learn more. Stearns Lending, Inc. is a California corporation headquartered at 4 Hutton Centre Drive, 10th Floor, Santa Ana, California 92707. Call toll free at: (800) 350-LEND (5363). Company NMLS# 1854. Stearns Lending, Inc. is registered, or exempt from licensing to conduct business in the following states which require license disclosure on advertising materials: Arizona Mortgage Banker License #0905413; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act (RMLA license #4130495); Regulated by the Colorado Division of Real Estate; Georgia Residential Mortgage Licensee #24066; Illinois Residential Mortgage Licensee #MB.6760686; Kansas Licensed Mortgage Company #MC.0025047; Massachusetts Mortgage Lender/Broker License #MC1854; Licensed by the Mississippi Department of Banking and Consumer Finance; Missouri Residential Mortgage Loan Broker License #12-2052; Licensed by the New Hampshire Banking Department; Licensed by the Pennsylvania Department of Banking, License #28788; Registered under Texas SML Mortgage Banker Registration; Virginia State Corporation Commission Lender/Broker License #MC-2184; Washington Consumer Loan Company License #CL-1854. This information is accurate as of February 12, 2014. © 2014 Stearns Lending, Inc. All Rights Reserved. This is not a commitment to lend. FEBRUARY 2014 | 5

NEWS / FORUM FORCES

MPAMAG.COM

From Rep. Jeb Hensarling’s evisceration of the Consumer Financial Protection Bureau to CFPB director Richard Cordray’s appearance on Jeopardy!, it’s been an interesting few weeks in the mortgage industry. And whatever the topic, MPA readers had an opinion. Below, participants in MPA’s online forum sound off on some of the issues affecting the industry DODD-FRANK

HENSARLING ON THE OFFENSIVE

RED TAPE

PAPERWORK FIRES UP ORIGINATORS I just upload an FHA loan package to a lender yesterday and it was 310 pages. Absolutely ridiculous! - Nancy

Nancy gets the conversation started after reading MPA journalist Ryan Smith’s report entitled “500-page mortgage apps ‘the new future’” Hopefully in 2016 there will be no more CFPB and the Dodd Frank ACT and Safe ACT will be repealed. Hopefully!! - Bill I just purchased bigger fasteners for my files because the two inch ones don’t hold all the paper anymore. - Griff

It’s true. If they want to eliminate all risk, then all lending must cease. - Dave

I got a bad hamburger the other day. Why didn’t the government protect me!!? - Rick Phillips

MPA online reader Dave reacts to chairman of the House Financial Services Committee Jeb Hensarling blasting the Dodd-Frank Act’s Volcker Rule as “a solution in search of a problem.” Rhetoric solves nothing, but at least someone is standing up and stating truth. - Bill

JEOPARDY!

CORDRAY’S TOUGH QUESTIONS I went to school and grew up with him. He has impeccable character and would ultimately be a GREAT candidate for President, should he choose to go that direction.

Dodd-Frank Act is of no good use in lending . It is hurting the very people they think they are trying to help. - Joel

- Pat McCarthy

Finally someone in Washington that acknowledged the real problem and did not try to pass it off on brokers. - Mike Diffe Thank God you get the problem and are at least in a position of influence. Please keep up the good work. - John Burns

Join the debate at mpamag.com/forum

6 | MARCH 2014

TRENDING

• CFPB • Jeb Hensarling • QM

Pat McCarthy sings CFPB director Richard Cordray’s praises on the back of his recent Jeopardy! 30th anniversary appearance. (Cordray was an undeafeated five-time champion in 1987.) I am a big fan of Jeopardy. Anyone that can be a five-time champion should be commended. - Roger Gudobba Bad Appointment by Pres. Obama. Bad Law! Excellent Brain! - Bob Raaf

NEWS / ANALYSIS

RESIDENTIAL

CONSUMER OUTLOOK FOR HOME PRICES WANES Are home prices set to rise this year? The percentage of the American public who answered yes to that question has taken a slight tumble. According to Fannie Mae’s monthly housing survey, public confidence in the prospect of home prices rising over the next year-long period has reached its lowest level in 12 months. The survey results reveal that 43% of consumers believe home prices will go up in the next 12 months. This is a drop of 6% on the previous month’s figure, and the lowest figure since January 2013. The good news is that— of the survey respondents who answered the question—only 6% expect home prices to drop this year, an improvement on the previous survey’s figure of 9%. Forty-five per cent expect home prices to stay flat this year—a monthly increase of 7%. When it came to mortgage rates, 55% of respondents said they expected rates to go up this year, with 34% saying they would stay the same and 5% saying there would be no change. In what could be promising news for America’s mortgage origination community, 70% said they would buy rather than rent if they were going to move home—a 4% increase on the last survey’s figure.

MPAMAG.COM

CONSUMER ATTITUDES

43%

Home prices to rise

55%

Mortgage rates to rise

65%

Good time to buy

BRANDING

WELLS FARGO ON TOP OF THE WORLD Wells Fargo has been named as the most valuable banking brand for 2014, with three other US banks featuring in the top 10. The ranking, compiled by Brand Finance in collaboration with The Banker magazine, valued Wells Fargo at $30,242m, with the UK’s HSBC placing second with a value of $26,870m. Judging by last year’s valuation of $26,044m, Wells has had a strong year in the eyes of the Brand Finance analysts. Last year’s second-placed bank, Chase, dropped to fifth place on the back of strong performances from HSBC, Bank of America and Citi, whose values all increased by at least $2,000m over the past year, according to this year’s results. China continues to be a growing force to be reckoned with, with three of its banks making the top 10 this year—ICBC, China Construction Bank and Agricultural Bank of China. France and Spain were also represented by BNP Paribas and Santander, respectively. THE WORLD’S MOST VALUABLE BANKING BRANDS Rank 2014

Rank 2013

Brand

Domicile

Brand value 2014 ($m)

Brand rating 2014

Brand value change

Brand value change ($m)

Brand value 2013 ($m)

Brand rating 2013

Wells Fargo

30,242

AAA-

16.12%

4,198

26,044

AA+

HSBC

26,870

AAA

17.52%

4,005

22,865

AAAAA+

Bank of America

26,683

AA+

19.13%

4,285

22,397

Citi

24,518

AA+

13.11%

2,841

21,677

AA+

23,157

AA+

-1.07%

-251

23,408

AAA-

Chase

ICBC

China

22,803

AA+

15.05%

2,984

19,820

AA+

BNP Paribas

France

20,206

AAA-

8.79%

1,633

18,573

AAA-

Santander

Spain

20,021

AAA-

-0.49%

-98

20,119

AAA-

China Construction Bank

China

18,954

AA+

11.83%

2,005

16,949

Agricultural Bank of China

China

17,783

AA+

11.37%

1,816

15,967

AA-

Source: Brand Finance/The Banker

48%

Home rental prices to rise

44%

Personal financial situation to get better

Source: Fannie Mae National Housing Survey, Jan 2014

TOTAL BANK BRAND VALUE BY COUNTRY Country

Total brand value 2014 ($m)

Total brand value 2013 ($m)

Brand value change

Brand value change ($m)

193,633

174,438

11%

19,195

CHINA

113,219

94,248

20%

18,971

76,348

64,810

18%

11,538

JAPAN

55,833

34,901

60%

20,932

FRANCE

48,048

42,299

14%

5,748

CANADA

47,249

43,083

10%

4,166

SPAIN

36,096

33,713

2,383

BRAZIL

33,483

43,236

-23%

-9,753

GERMANY

32,425

28,558

14%

3,867

AUSTRALIA

29,812

28,014

1,799

Source: Brand Finance/The Banker

MARCH 2014 | 7

NEWS / ANALYSIS

COMMERCIAL

POSITIVE SIGNS FOR COMMERCIAL REAL ESTATE There’s a positive outlook on the horizon for the commercial real estate sector, albeit a cautiously optimistic one. According to the authors of Expectations & Market Realities in Real Estate 2014—The Future Unfolds, commercial real estate investments are expected to produce “generally solid returns” in 2014. The report is an annual forecast released by Real Estate Research Corporation (RERC), Deloitte, and the National Association of Realtors (NAR), which aims to offer an objective outlook for commercial real estate for 2014 and beyond. “We have seen steady if slow progress since the commercial real estate market collapsed in second quarter 2008, and as the future unfolds we expect that the positive returns for commercial real estate will continue,” said Kenneth Riggs, Jr., president and CEO of RERC. “The value increase from the trough is now about 30%, just slightly less than the value lost during the past six years. Although returns are likely to be positive in 2014, we forecast them to be a little lower than in 2013, but still a very reasonable approximate average of 8.75%.” Matthew Kimmel, principal and US real estate sector leader for Deloitte Transactions and Business Analytics LLP, said the stabilization the commercial real estate market has seen during the past year has added greatly to the “cautiously optimistic” outlook the report’s authors present. “Overall, we see the potential for moderate and continued growth in the volume of commercial property transactions and in property prices.” The forecast continued recovery of the real estate sector includes the expectation that the economy will grow at an annual rate of approximately 2.6%, with about 2.2 million jobs to be created this year, explained NAR chief economist Lawrence Yun. “More jobs mean increased demand for office, retail, apartment, and other commercial real estate sectors,” he said.

8 | MARCH 2014

2014 NAR ECONOMIC OUTLOOK

GDP Real GDP growth of

Jobs Job growth of

2.5%

1.7%

Employment Unemployment at

Interest rates 30-year government bond at

6.6%

Source: Expectations & Market Realities in Real Estate 2014—The Future Unfolds

MPAMAG.COM

FORECAST

AMERICA’S TOP 20 APARTMENT MARKETS Effective rent growth 2014

4% Seattle

Riverside

US 3.4%

3.7% 3.4%

4.8% San Francisco

Las Vegas

Los Angeles

3.7%

Santa Ana San Diego

Boston New York Metro

Washington DC Metro

Chicago

Denver

-1.9%

2.9%

3.7%

3.3% 3.1% 4.2%

4.2% 3.4%

Phoenix

3.7% Austin

Dallas

3.6% Houston

Charlotte

Atlanta

3.3% 3.2% Orlando

Tampa

Source: Axiometrics/Expectations & Market Realities in Real Estate 2014—The Future Unfolds

Straight Forward Branch Opportunities

Contact Chad cjampedro@gogsf.com Direct: 262-901-1444

MARCH 2014 | 9

NEWS ANALYSIS / THE DATA

GLOBAL HOUSING AFFORDABILITY Rockford, IL US Decatur, IL US Springfield, IL US Vancouver, BC Canada

WORLD RANKING: =4 MEDIAN HOUSE PRICE: $91,000 MEDIAN HOUSHOLD INCOME: $45,400

WORLD RANKING: =9 MEDIAN HOUSE PRICE: $120,600 MEDIAN HOUSHOLD INCOME: $56,700

Utica, NY US WORLD RANKING: =1 MEDIAN HOUSE PRICE: $80,000 MEDIAN HOUSHOLD INCOME: $47,500

WORLD RANKING: 356 MEDIAN HOUSE PRICE: $638,900 MEDIAN HOUSHOLD INCOME: $69,000

Santa Cruz, CA US WORLD RANKING: =354 MEDIAN HOUSE PRICE: $621,200 MEDIAN HOUSHOLD INCOME: $69,000

San Jose, CA US WORLD RANKING: =353 MEDIAN HOUSE PRICE: $805,000 MEDIAN HOUSHOLD INCOME: $92,400

Santa Barbara, CA US

WORLD RANKING: 358 MEDIAN HOUSE PRICE: $679,800 MEDIAN HOUSHOLD INCOME: $72,700

10 | MARCH 2014

WORLD RANKING: =4 MEDIAN HOUSE PRICE: $124,600 MEDIAN HOUSHOLD INCOME: $61,300

WORLD RANKING: =4 MEDIAN HOUSE PRICE: $100,000 MEDIAN HOUSHOLD INCOME: $49,500

San FranciscoOakland, CA US

10 MOST AFFORDABLE CITIES

Appleton, WI US

Lansing, MI US

WORLD RANKING: 359 MEDIAN HOUSE PRICE: $599,450 MEDIAN HOUSHOLD INCOME: $58,130

Honolulu, HI US

WORLD RANKING: =1 MEDIAN HOUSE PRICE: $88,900 MEDIAN HOUSHOLD INCOME: $51,600

WORLD RANKING: 357 MEDIAN HOUSE PRICE: $638,900 MEDIAN HOUSHOLD INCOME: $69,000

10 LEAST AFFORDABLE CITIES

Toledo, OH US WORLD RANKING: =4 MEDIAN HOUSE PRICE: $87,500 MEDIAN HOUSHOLD INCOME: $44,100

Youngstown, OH-PA US WORLD RANKING: =9 MEDIAN HOUSE PRICE: $85,000 MEDIAN HOUSHOLD INCOME: $41,400

Warner Robbins, GA US WORLD RANKING: 3 MEDIAN HOUSE PRICE: $103,900 MEDIAN HOUSHOLD INCOME: $55,500

MPAMAG.COM

Source: 10th Annual Demographia International Housing Affordability Survey: 2014

Another year, another International Housing Affordability Survey from Demographia. So how did the US fare in this year’s rundown of the developed world’s most and least affordable property markets? A total of 360 metropolitan markets were compared from nine countries (Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, the UK and the US), and the US managed to take nine of the 10 most affordable rankings. In this year’s study,

Rockford, Ill., and Utica, NY, shared the most affordable tag, with last year’s number one, Denver, coming in at joint 27th. At the other end of the scale, the US took out five of the 10 least affordable city spots. Honolulu was judged to be the USA’s least affordable market, with only Vancouver and Hong Kong scoring lower on the affordability ranking list.

Waterford Ireland WORLD RANKING: =4 MEDIAN HOUSE PRICE: $126,300 MEDIAN HOUSHOLD INCOME: $64,000

Bournemouth & Dorset UK

Hong Kong China SAR WORLD RANKING: 360 MEDIAN HOUSE PRICE: $518,120 MEDIAN HOUSHOLD INCOME: $34,765

WORLD RANKING: 352 MEDIAN HOUSE PRICE: $369,250 MEDIAN HOUSHOLD INCOME: $42,720

Sydney, NSW Australia WORLD RANKING: =354 MEDIAN HOUSE PRICE: $631,110 MEDIAN HOUSHOLD INCOME: $70,300

Melbourne, Vic Australia WORLD RANKING: 351 MEDIAN HOUSE PRICE: $520,030 MEDIAN HOUSHOLD INCOME: $61,830

MARCH 2014 | 11

NEWS ANALYSIS / THE DATA

HOME SALES FORECAST

Source: MBA Mortgage Finance Forecast

Home sales are obviously a vital element of the mortgage origination industry, and the good news is that—according to MBA estimates at least—2014 and 2015 are expected to outstrip 2013 in terms of sheer sale numbers. The first quarter of this year, for example, is expected to yield 4% more existing home sales and 7% more new home sales than the first quarter of

EXISTING HOMES NEW HOMES

6,000,000

2013. Fast forward to the third quarter of this year and new home sales are expected to beat the figure for the corresponding period from 2013 by 15%. Meanwhile, Q4 2014 and Q1 2015 are expected to be strong performers for existing home sales—both of which are predicted to beat the previous year’s figures by 6%.

5,000,000 4,000,000 3,000,000 2,000,000 1, 0 0 0 , 0 0 0 750,000 500,000 250,000

2013

2014

GDP PER CAPITA

2015 Q1

Source: The World Bank

How has the wealth of the world’s richest populations fared pre- and post-financial crisis? Data from the World Bank shows that, at last count in 2012, the inhabitants of Luxembourg had the highest GDP per capita in the world at $103,828. This was more than double the small European nation’s 2000 figure of $46,453.

125,000

Based on the most recent figures from the World Bank, the US makes it into the top 10 for GDP per capita with a figure of $51,749. This was a significant increase on 2000’s figure of $36,467 but, looking at the line chart, it appears that the US experienced the flattest GDP per capita growth of the countries featured in the top 10.

100,000

75,000

50,000

25,000

Luxembourg Australia

2000

12 | MARCH 2014

2001

2 002

2 003

2 004

20 0 5

20 0 6

20 0 7

Norway Denmark 20 0 8

Bermuda Sweden 20 0 9

Switzerland Canada 20 1 0

Macao SAR, China United States 20 1 1

2 0 12

MPAMAG.COM

UNEMPLOYMENT RATES North Dakota 2.6%

9 2 50 47

Wyoming 4.4%

Nevada 8.8%

California 8.3%

Utah 4.1%

Nebraska 3.6%

Kansas 4.9%

Arizona 7.6%

46 Illinois 8.6%

44 43

Mississippi 8%

Hawaii 4.5%

THE TOP 10

Kentucky 8%

THE BOTTOM 10

5 51

Michigan 8.4%

Iowa 4.2%

Tennessee 7.8%

Vermont 4.2%

Minnesota 4.6%

South Dakota 3.6%

Source: BLS, seasonally adjusted preliminary stats, Dec 2013

Rhode Island 9.1%

District of Columbia 8.1%

High employment rates are a key ingredient in any healthy property market, so the good news for originators in North Dakota is that—according to the Bureau of Labor Statistics—their state currently has the lowest unemployment rate in the country at 2.6%. Nebraska and South Dakota also fare well in equal second place, with unemployment rates of 3.6%, while the rest of the top 10 all have figures below 5%. At the other end of the list, Rhode Island has the highest unemployment rate at 9.1%, with Nevada and Illinois following at 8.8% and 8.6% respectively. All of the bottom 10 states have unemployment rates of 7.5% or above.

MARCH 2014 | 13

NEWS ANALYSIS / PROFESSIONAL TITLES

Is ‘broker’ a

dirty wo

14 | MARCH 2014

Should you be distancing yourself from the term ‘mortgage broker,’ or wearing your broker badge with pride against those that would unfairly make your profession the scapegoat for the financial crisis? Ryan Smith investigates

The aftermath of the housing meltdown saw scorn heaped on mortgage ‘brokers,’ who shouldered blame in the public’s perception out of all proportion to their actual responsibility. As the crisis unfolded, many lenders either saddled broker-originated loans with onerous restrictions or, like JPMorgan Chase and Citigroup, stopped lending through brokers altogether. Over the last few years, several state associations have taken the ‘broker’ out of their names, substituting the word ‘professional.’ But while the stigma on the word ‘broker’ might have had something to do with those changes, Marc Savitt, president of the National Association of Independent Mortgage Professionals, says it was hardly the only reason.

ord

“I’m sure that played a part in the name changes, but what a lot of the groups did—especially the state associations—is they evolved into groups that included other mortgage originators,” he said. “If you’re an appraiser or a mortgage banker, you may not want to join a group that says ‘mortgage broker’ because you’re not a broker.”

A BAD RAP Savitt feels that others in the industry—among them some of the big banks—tried to tar brokers with the blame for the financial meltdown, and that for a time “the term ‘mortgage broker’ was not seen within the industry as a favorable term—not by consumers, but by some within the industry,” he said. “I think those that were pointing the fingers and painting brokers as the bad guys tried to create that image. The bad rap was being pushed by people who were painting the brokers as bad actors ... Every crisis needs a scapegoat, and mortgage ‘brokers’ were the scapegoat in this crisis.” But an informal poll seems to indicate that many consumers do prefer ‘professionals’ to ‘brokers.’ The poll showed that 50% of respondents, if given the choice, would prefer to do business with a ‘mortgage professional,’ while only 17% say they’d rather get a loan from a ‘mortgage broker.’ The poll also shows that to some consumers, at least, the word ‘broker’ connotes a commission-hungry shark. “I would assume a mortgage ‘professional’ makes a salary and has a more vested interest in securing a sustainable mortgage,” one respondent commented, “whereas a mortgage ‘broker,’ I would imagine, works off commission and has less interest in designing a sustainable mortgage.”

NAM’B’ OR ‘P’? Is ‘broker’ a dirty word? National Association of Mortgage Brokers president Don Frommeyer doesn’t think so. NAMB has maintained its acronym—in which the ‘B’ clearly stands for ‘broker’—but recently adopted ‘The Association of Mortgage Professionals’ as its tagline. “I honestly don’t think you see people sweeping the broker title under the rug,” he said. “I’m very proud to be a mortgage broker. I don’t hide the fact that I’m a mortgage broker.”

MPAMAG.COM

“It’s a semantics thing, I suppose,” said another. “‘Professional’ sounds more, well, professional, while a broker, to me, sounds like someone who will steer you to the loan they get the biggest commission on. Whether that’s true, I don’t know, but we’re talking about word connotations.”

“Every crisis needs a scapegoat, and mortgage ‘brokers’ were the scapegoat in this crisis” Marc Savitt, NAIHP

LINGERING STIGMA And many brokers recognize that the word has negative connotations for some. Michael Deery, president of Citywide Financial Corp in San Diego, calls himself a ‘mortgage planner.’ He believes there’s still some lingering stigma from the financial crisis. “It’s easy to jump on the bandwagon. That stigma will carry. It’s just the way it is in society,” he said. “I hear it every now and then: ‘Oh, you’re a broker.’ Well, what does that mean?” Amy Tierce, a mortgage banker from Needham Heights, Mass., said that stigma is alive even within the mortgage industry. MARCH 2014 | 15

NEWS ANALYSIS / PROFESSIONAL TITLES

MPAMAG.COM

STATE ASSOCIATIONS: ALL CHANGE

POLL

GIVEN THE CHOICE, WOULD YOU PREFER TO DO BUSINESS WITH A MORTGAGE ‘PROFESSIONAL’ OR MORTGAGE ‘BROKER’?

50%

33% No preference

Mortgage professional

17%

Mortgage broker

“As recently as two years ago, when I was chairelect of the Massachusetts Mortgage Bankers and was advocating for a change to ‘Massachusetts Mortgage Lenders,’ I heard a lot of, ‘We don’t want brokers,’ ” she said.

“The stigma will carry … I hear it every now and then: ‘Oh, you’re a broker.’ Well, what does that mean?” Michael Deery, Citywide Financial Corp And the word ‘professional’ has different connotations from a PR standpoint. Rosalie Berg, CEO of public relations firm Strategic Vantage, said the word not only functions as a convenient umbrella 16 | MARCH 2014

While most state associations don’t use the word ‘broker’ in their names, there are still a couple of holdouts: •• Mortgage Bankers and Brokers Association of New Hampshire •• Pennsylvania Association of Mortgage Brokers Until January, the Alabama Mortgage Brokers Association was on that list as well. But this year the organization finally bowed to the winds of change and replaced the word ‘brokers’ with the word ‘professionals.’ “We had some brokers that were very vocal—‘We’ve survived some tough times, we’re proud of what we do,’ ” said executive director Tammy Kirk. “But ultimately it’s from a membership side, being as inclusive as we can... Really why we did hold off was keeping that recognition. We weren’t looking at it as a negative. We’re looking to make the change just to encompass more membership.” Another state association that changed its name—the Florida Association of Mortgage Professionals—did so primarily for legal reasons. The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 defined a ‘mortgage broker’ as a business, whereas individual mortgage professionals were ‘loan originators.’ “It was to reduce confusion,” said FAMP president Valerie Saunders. “The main reason we changed FAMP’s name was to show that we represented individuals as well as businesses.”

term for multiple jobs within the industry but also marks the difference between the industry as it exists today and as it existed pre-meltdown. “Just as we have seen increasing use of the term ‘real estate professionals’ to represent agents, brokers and others in that business, ‘mortgage professionals’ is a convenient shorthand that differentiates the modern environment from the less regulated and standardized industry that existed prior to the mortgage crisis,” Berg said. But Deery feels that most consumers ultimately don’t make fine distinctions between titles. “I call myself a mortgage planner, mortgage specialist, mortgage adviser— but at the end of the day, I don’t think these consumers really care,” he said. “Maybe two out of 10 might say, ‘Are you a broker?’ ” he said. “I have absolutely no qualms calling myself a mortgage broker.”

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HEAD TO HEAD / MAT ISHBIA

NOT OF

18 | MARCH 2014

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THE END THE

ORLD There’s no doubt QM is shaking up the mortgage world. But United Wholesale Mortgage president Mat Ishbia thinks the apocalypse isn’t with us just yet

ater in this issue of MPA, we’re looking at qualified mortgage (QM) solutions, so we thought we’d ask an industry pro what effects QM is having where the rubber meets the road. We caught up with Mat Ishbia, president of United Wholesale Mortgage, and asked him how the new regulations are changing the business.

MPA: After months of teeth-gnashing and doomsaying, QM finally took effect in January. So, first question—is it actually the end of the world?

Mat Ishbia: It’s definitely not the end of the world. Obviously QM is a change. Some changes have been implemented, but they’re so much more minor than a lot of people like to believe. It’s not doomsday. It’s not the end of the world. Brokers are still doing a lot of business. We’re still doing a lot of business every day. Things are going really well. A lot of people wanted to say it was doomsday for the mortgage brokers—or the mortgage industry in general—but that’s really not the case at this point.

“It’s definitely not the end of the world ... It’s not doomsday” MARCH 2014 | 19

HEAD TO HEAD / MAT ISHBIA

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MPA: You’re one of the top wholesalers in the nation, so obviously you want to get out ahead of new regulations to maintain your competitive edge. How did United Wholesale Mortgage prepare for QM? MI: It was really a great team effort by everyone in our company to make sure we really understood the rules—not just the compliance team but the business leaders as well. We really put together a plan that made sense to help our brokers succeed in this market while being completely in compliance. So it was a team effort across the board in order to make sure that our brokers were educated about the rules, understood how to implement the rules on their side, and make sure all the technology on our side was set up as well. There were a lot of moving parts, but it really worked out well, and we’ve really been happy with the rollout and implementation.

“People are sitting there paralyzed by the regulation and not really prepared for what they should do” MPA: What effect, if any, has QM had on the wholesale business? MI: The biggest effect is that people don’t know. People are sitting there paralyzed by the regulation and not really prepared for what they should do. A lot of brokers stopped marketing in December because they didn’t know what was going to happen in January. We did four webinars, and we had over a thousand people on all four. It’s the most we’ve ever had, especially for separate webinars on the same topic. Some people were on the same webinar twice because they wanted to learn the rules. That’s the biggest negative we found—that people were paralyzed because they were trying to figure out what was going on, rather than going out and getting business, marketing, going to visit their realtor

20 | MARCH 2014

contacts; all the things that help them grow their business. We had over 4,500 brokers here—85% of them had a (compensation) plan less than two and a quarter. So the 3% cap business—it’s really a non-issue for 85% of them. With the comp plan, it works out fine with the flexibility we offer at UWM. So the truth of the matter is, there’s very few that were affected by it. There were really no loans that were affected by it, so no products were eliminated.

MPA: So how do you work within the new guidelines? What are your QM solutions? MI: I think it’s to educate the brokers, number one: let them understand the rules and understand that it’s not the end of the world. Number two was putting technology fixes in place to show the brokers, ‘Hey, listen: in this situation this would be outside the 3% cap,’ because the 3% cap is the only thing that really impacts anyone on the QM rule—well, not the only thing, but basically, on 99% of the loans. Everyone was worried about the 43% debt-toincome ratio; some of our competitors are not allowing anyone to go over 43%, which is not the rule at all. You can go to Fannie Mae, Freddie Mac or Ginnie Mae—those are exempt (from the 43% DTI rule) for the next seven years. Basically, product-wise you’re doing the exact same loans you did in 2013 and 2012. You’re not losing any product. And from a compensation perspective, there’s probably about 10% of our brokers—or even a little less than that—who had to lower their comp plan in some way.

MPA: So you’re not seeing as many problems as a lot of people expected? MI: No, we’re not. We’re using technology to put the guard rails around our clients. And like I said, I think it’s mostly education. The hard part for a broker—or for anyone—is that there’s a rule out there, and 10 different lenders interpret it 10 different ways. We try to give the same information to our clients, our brokers. And to give them credit, they’ve done a great job with it. They’re doing pretty much the same business, and some of them even more; they’re really humming. It’s good to see.

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A+

FEBRUARY 2014 | 21

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C N A R B U 22 | MARCH 2014

G N I H C

T U O

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Going it alone in the mortgage origination world can be tough, especially when new hurdles such as the QM rule are thrown in your way. Joining a branch network and making the most of all the corporate support that comes with it is one way to ease the pain. Ryan Smith explores the advantages of this system —and how to pick the right organization for you In today’s post-QM environment, it’s getting harder and harder for originators to go it alone. Independent originators can’t just focus on writing loans—they have to worry about marketing, the fulfillment of continuing education requirements, and most of all, compliance. MARCH 2014 | 23

SPECIAL REPORT / BRANCH NETWORKS

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“There are over a hundred companies that offer branch opportunities. It comes down to the best fit for the candidate and the best fit for the company” Daniel Milstein, founder and CEO, Gold Star Mortgage Financial Group

With all that and more on the independent originator’s plate, the idea of joining a branch network is increasingly seductive to many mortgage professionals. And while being a lone wolf certainly has its appeal, branch networks offer definite advantages. From compliance to marketing and brand awareness, the support of a major corporate entity can mitigate a lot of the everyday headaches of the business and free up originators to do what they got into the industry to do—make loans. “All regulation we’ve continued to see is forcing mortgage professionals to be more volume driven than profit driven,” says Daniel Milstein, founder and CEO of Gold Star Mortgage Financial Group. “Freeing up a branch manager, a loan officer, a sales team, from administrative responsibilities gives them more time to sell in a volume environment. … You get complete support from A to Z. Most importantly, being part of a network, the back office 24 | MARCH 2014

is taken care of. It enables you to concentrate on sales instead of day-to-day administrative items.” So what are the advantages of joining a branch network? Last year, MPA asked originators to rank branch networks’ most important selling points on a scale of one to 10. Most originators thought underwriting support and quick turnaround time were the most important advantages a branch network could offer, while compliance and marketing also rated high on the list.

UNDERWRITING, PROCESSING SUPPORT AND TURNAROUND TIME Getting loans approved quickly isn’t just good for the originator—it’s good for the customer. With that in mind, most originators thought underwriting support and turnaround time were far and away the most important considerations when looking at joining a branch network. And it’s here that being part of a network can deliver in spades.

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Join a company run by the salespeople, for the sales people. Gold Star’s Premier Branch Affiliate Network Offers Customizable Branch Compensation Model

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SPECIAL REPORT / BRANCH NETWORKS

By plugging directly into a branch network’s dedicated underwriting and processing team, originators can get loan approvals faster—and that makes their entire business run more efficiently. With that in mind, speedy underwriting and processing is a top priority for most branch networks. Gold Star, which boasts 35 branches in 21 states, knows that speedy turnaround times are crucial to keeping the sales pipeline flowing—and on the most fundamental level, that’s what it’s all about, Milstein says. “We’re a sales organization. We certainly have a top-notch compliance department and legal department, but in the end it’s all about helping our loan officers and branch managers take their business to the next level.” Residential Home Funding, which has 22 branches along the East Coast, also prioritizes speed in underwriting and processing. “We have true 48-hour underwriting turn time and true 48-hour closing turn time,” says Frank Kuri, senior vice president for branch development at Residential Home Funding. “From the time that a loan is time-stamped in our LOS, it’s decisioned by an underwriter within 48 hours or less. And again, from the moment the loan is time-stamped in our LOS as released from underwriting, it’s cleared to close within 48 hours.”

COMPLIANCE SUPPORT Of course, speedy underwriting and processing doesn’t matter if you run afoul of any one of the raft of new regulations that have been thrown at originators in recent years. Keeping on the right side of the new regs has become increasingly complex —and having a corporate compliance team at your disposal can be a lifesaver. Taking the compliance anchor from around the necks of originators is one of the most important things a branch network can do, says Joe Ewens, president of Golden Empire Mortgage. “We have an entire compliance department— including an on-staff attorney—to support [originators]. For us, it’s trying to simplify [compliance] for the originator as much as we can to allow them to focus on originating loans,” he says. The compliance, the legal, the regulatory services, the licensing—“to have somebody to do that for you so you can continue to focus on sales and driving revenue to the bottom line—those are all very important things,” Milstein says. 26 | MARCH 2014

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IN FOCUS: RESIDENTIAL HOME FUNDING Established in 2000, Residential Home Funding is consistently ranked as one of the top mortgage bankers in the country. “Over the last 14 years, we’ve perfected a system that seamlessly transitions top originators, mortgage brokers and branch managers into a retail P&L branch platform,” says Frank Kuri, Residential Home Funding’s senior vice president for branch development. “Most other companies, although they’ve been in business for a while, have not been specifically in the retail P&L branching arena. I don’t think there’s anyone else who has as much experience as we do. Equally important, our number one priority is communication and support.” With 22 branches in 12 states along the East Coast, that communication and support is vital to a smooth lending process—and Residential Home Funding is up to the task. “We have true 48-hour underwriting turn time and true 48-hour closing turn time,” Kuri says. “From the time that a loan is time-stamped in our LOS, it’s decisioned by an underwriter within 48 hours or less. “And again, from the moment the loan is time-stamped in our LOS as released from underwriting, it’s cleared to close within 48 hours. “We also have four full-time compliance officers in-house, and one is a mortgage banking compliance attorney. He doesn’t do closings or settlements—he’s strictly a compliance attorney. “We are completely paperless,” Kuri says. “We allow loan officers to disclose electronically and receive electronic signatures, which allows them to order the [HVCC] appraisal the same day. We also have a fully staffed in-house IT department.” Residential Home Funding also supports its branch managers with frequent training and marketing support. “We have several divisions that specifically help [branch managers] grow their business and increase their originations through marketing, recruiting campaigns, live webinars, monthly training, technology geared toward social media, and industry speakers,” he says. “We share the successes of other branches that have executed marketing campaigns that achieved the desired results.” Branch managers and originators are paid either salary, salary plus commission or commission plus bonus. “We’re looking for minimum mortgage banking experience of three to five years, and we have minimum closing requirements of eight to 12 units per month,” Kuri says. “We want an industry professional who’s inspired and motivated to grow their business, and looking for the help to do it.”

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“Over the last 14 years, we have perfected a system that seamlessly transitions mortgage brokers, branch managers and top producers into our P&L retail branch platform.” Frank Kuri

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RHFBranch.com 866.319.4442

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AUTONOMY But does having a ‘home office’ to take care of underwriting and compliance mean you give up your autonomy? One of the things an independent originator may relish about their business is being their own boss. Does joining a branch network destroy that sense of independence? Well, not necessarily, according to the experts. “Obviously, we’ve got policies and procedures, but aside from those, [branch managers] have the autonomy to run the office as they see fit,” Ewens says. “There’s certainly freedom in terms of the hiring process for those people. ‘Who can I hire and when?’ tends to be driven more by the manager than the corporate office. We’ve got some long-term branches that have been around 10, 15 years. I think that says a lot about the staying power of the company.”

“I strongly suggest that anyone considering a retail branch opportunity to visit the companies they’re speaking with before making a decision” Frank Kuri, SVP for branch development, Residential Home Funding There’s plenty of autonomy at Gold Star too, Milstein says, though he warns that every branch network is different in that respect. “They can still manage day to day, but for the most part all our branch managers are also producers,” he says. “You can lead your sales team and let Gold Star handle all your back-office issues.”

TECHNOLOGY, SOFTWARE AND CRM SUPPORT One of the greatest advantages of joining a branch network is gaining access to the kind of cutting-edge technology that may be beyond the reach of an independent operator. Gold Star, for instance, has developed proprietary software that allows its real estate agent partners to log in and see the progress of any of their transactions in real time, eliminating the need for multiple phone calls between real estate agents and loan officers. Residential Home Funding has also embraced 28 | MARCH 2014

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technology as an efficiency booster. “We are completely paperless,” Kuri says. “We allow loan officers to disclose electronically and receive electronic signatures, which allows them to order the [Home Valuation Code of Conduct] appraisal the same day. We also have a fully staffed in-house IT department.” Technology support also allows branch networks to develop strategies to improve their service, Milstein says. “Everyone talks about service and support,” he says. “Gold Star made itself accountable. Every service-oriented situation is monitored down to the minute. We can see how long it’s taking for a loan officer’s situation to be resolved. We can quantify it in real numbers.”

MARKETING AND BRAND AWARENESS It’s an old marketing axiom that if customers don’t know you exist, it doesn’t matter how good your product is. And marketing strategy doesn’t come easily to everyone—after all, there’s a reason companies pay professionals to do it. That’s why access to a branch network’s professional marketing team can make all the difference when it comes to generating business. “We have a full-blown marketing department,” Milstein says. “We make it a one-stop shop. At the branch level you write the loans and follow our advice as you wish, and we take your business to the next level.” Gold Star is also building a full audio-visual studio to produce marketing tools, he says. Open Mortgage, one of the nation’s top reverse mortgage lenders, uses what founder and CEO Scott Gordon calls “super-charged old-school networking” —a combination of digital marketing and oldfashioned, feet-on-the-street marketing specials—to increase its branches’ profiles in their communities. “You can’t live today and look around on the web and ignore social media,” Gordon says. “In the last year, we’ve really expanded what we’ve done with technology and social media, and used that along with traditional marketing to change how loan officers work.” And Open Mortgage’s marketing specials—such as its current $500 credit to first-time home buyers —help make their branches part of the community, says vice president of marketing Diane Creasy. “We like helping people, and it engages the community and gives us something to talk about with the customers,” she says.

Are you the next GEM waiting to be discovered?

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Golden Empire Moprtgage (GEM) was founded in 1987. We match unparalleled product mix and pricing with state-of-the-art technology to create a platform designed to support the purchase market. Our seasoned management team will provide the necessary leadership to grow your business to the next level. If you are a branch or loan originator funding at least $3 million per month and source your business from Realtor referrals and past clients, we want to talk to you.

Call Joe Ewens at 800-320-1758 www.gembranchinfo.com

Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act NMLS#2427, Arizona Mortgage Banking License #0906440, Oregon Mortgage License #ML2891, Washington Department of Financial Institutions License #CL-2427

MARCH 2014 | 29â&#x20AC;&#x201A;â&#x20AC;&#x201A;

SPECIAL REPORT / BRANCH NETWORKS

CASE STUDY: A FAMILY AFFAIR AFTER YEARS OF COMPETING WITH EACH OTHER, BROTHERS DAVE AND DAN LEEDER ARE WORKING TOGETHER AT INLANTA MORTGAGE

The mortgage business is a family affair for Dave and Dan Leeder. Dave, a 27-year industry veteran, recently rejoined Inlanta Mortgage as the manager of the Middleton, Wis., branch, bringing his brother, Dan, and his wife, Kathy, and processor/underwriter Nikki Haag with him. Dave Leeder got into the mortgage business early. “I started in my twenties in consumer finance and learned the lending business there,” he says. “I worked through different channels, all through the mortgage lending business, and I’ve been doing it ever since.” His brother, however, took a more roundabout route. “I was working at a huge aerospace company out in California, and after Desert Storm they closed the plant down and 500 of us were out of work,” Dan says. “I had my brother and my best friend in high school both in the mortgage business, and they were both trying to convince me to enter the business. That was 22 years ago. “For about 15 years we were competitors, and we found it wasn’t that fun going head-to-head, competing against each other in the mortgage business,” Dan says. “It was a lot more fun to compete on the golf course. “I was in the management side for 10 years. It was about two years ago when I got back into originating,

30 | MARCH 2014

working with Dave. We’ve always been close, so it’s a lot better being on the same team.” Dave, who had previously worked at Inlanta, said he returned primarily because of his past relationship with Inlanta’s owner, John Knowlton. “I knew firsthand of the high level of integrity and great culture that John brings to the business. That made the decision to come back to Inlanta very easy for me. My sister Dee, who’s also a mortgage professional, is also one of the main reasons we came back to Inlanta. She was a mortgage broker in the Florida Keys, then built a lake home in northern Wisconsin and opened up an Inlanta office there,” he says. “Dee has worked for Inlanta for the last eight or nine years, and we saw the kind of relationship she has with them,” Dan adds. “We were really impressed with the support she receives, and have experienced that firsthand since we’ve joined the company.” Dee isn’t the only other family member in the business. Dave’s wife, Kathy, is the branch’s client relations coordinator, and his son, Ryan Leeder, is a loan officer with Kal Financial in San Jose, Calif. “Our dad is a barber, but none of us know how to cut hair,” Dan jokes. “The mortgage business has worked for us. I’ve got a 14-year-old daughter, so I guess I’ll have to start training her soon.” Working with family has its advantages, Dave says. “I think the biggest thing I get from it is knowing that the commitment level is there. When you hire someone you don’t know, you don’t really know what you’re getting, but when you work with family, you know exactly what you’re getting—the assurance that they’re as committed as you are.” There is a “shorthand,” Dan says, “an understanding that goes deeper than a normal working relationship. They’ve also got your best interests in mind, so everyone works really well as a unit.” Dave says they both have the same approach to clients. “We build trust fairly easily, so to clients I think we’re fairly interchangeable,” he says. This is a big benefit to their customers and referral partners, Dan adds. “They know that they’ll always get taken care of, by either of us, when inevitably someone is on vacation or out of the office.” And does working with family every day ever get old? According to the Leeder brothers, so far, so good. “We work together, but we’re both so busy that we don’t really have a lot of face-to-face time during the day,” Dan says. “In addition, we all have cabins near each other in northern Wisconsin. We spend a lot of time together working and playing, and we still like hanging out. I think that is pretty cool.”

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TRAINING AND EDUCATION Continuing education isn’t just a good idea in this industry—it’s an absolute requirement. Having access to a branch network’s continuing education programs can not only help originators keep current with state licensing requirements but also provide them with real tools to grow their businesses. “I think that’s the new norm,” Ewens says. “I imagine most companies will begin to do more and more training. We do a lot of that, from both a sales aspect and compliance. There are things we’re doing to make sure [originators] understand what they’re up against. It’s important for them to understand so they can explain it to the customer.” Milstein—himself one of the industry’s top producers for over 10 years—stays intimately involved with training, personally mentoring his branch managers through frequent teleconferences. Gold Star also engages a professional coaching firm to help its branch managers and producers with both professional growth and work-life balance.

CHOOSING A BRANCH NETWORK Branch networks offer a lot of attractive benefits for mortgage professionals, but not every network is for every originator. “There are over a hundred companies that offer branch opportunities,” Milstein says. “It comes down to the best fit for the candidate and the best fit for the company.” So if you decide to go the branch route, how do you choose the right network for you? “I strongly suggest that anyone considering a retail branch opportunity to visit the companies they’re

“We like helping people, and it engages the community and gives us something to talk about with the customers” Diane Creasy, vice president of marketing, Open Mortgage

Join a company run by the salespeople, for the sales people. Call now for more info

(866) 278-7214

branchinfo@goldstarfinancial.com www.goldstarbranch.com www.goldstarfinancial.com

If you are concerned about QM and own your own company please contact us at 866-249-2190 to learn more about merger and acquisition opportunites. Approved to do business in AL, CA, CO, CT, FL, IL, IN, MA,MD, MI, MN, NC, NJ, OH, OR, PA, TN, TX, VA, WA, AND WI | NMLS#3446

MARCH 2014 | 31

SPECIAL REPORT / BRANCH NETWORKS

speaking with before making a decision,” Kuri advises. “Go out—even if you have to hop on a plane—and meet and greet. It’s critical.” And remember that just as you choose a branch network, the network also chooses you, and it would be wise to find out what the networks are looking for at the outset of your search. Residential Home Funding, for instance, asks applicants to have a minimum of three to five years of mortgage banking experience and has closing requirements of eight to 12 units per month. Golden Empire, meanwhile, wants branches that are doing at least $3m per month in volume, and branch managers who have a referral base and are operating in a purchase market. “It’s less of the refi guy or the call center guy—that’s not the guy we’re looking for,” Ewens says. “For us, it’s more of the purchase market guy who has the tools to attract realtors and get business.” Gold Star is looking for branch managers who’re hungry to better their skills and willing to take advice from experienced mortgage pros, Milstein says. “Our greatest success stories are guys who come in willing to learn,” he says. “Less than ideal are the guys who come in as lone wolves who aren’t willing to learn. If you’re willing to learn and you’re humble, we’ll help you take your business to the next level.”

LIFE AT A BRANCH So what’s life at a branch like? Well, according to one mortgage pro, it’s pretty much like life anywhere—it’s all in what you make of it. Amy Tierce, described by her colleagues as a “rockstar mortgage guru,” has more than 20 years’ experience in the industry. For the last seven of those years she’s been leading one of the top branches of Fairway Independent Mortgage. Tierce’s Newton, Mass., branch is home to five of the company’s top 10 producers. In addition to keeping production humming, Tierce finds time to keep her branch active in local philanthropy, lending support to organizations that help the homeless and victims of domestic violence. In the wake of the 2012 Boston Marathon bombings, Tierce and her staff hosted a day of shopping on Boston’s Boylston Street, raising $50,000 for One Fund, a charity formed to assist victims and families affected by the bombings.

32 | MARCH 2014

BRANCH NETWORKS: 6 REASONS TO JOIN Last year, MPA surveyed originators to find out how highly they rated each of six key selling points of branch networks. We asked survey respondents to rate the importance of each selling point on a scale of one to 10. Here’s how the numbers shook out:

Underwriting/ processing support and turnaround time

9.2

Compliance support

8.9

Autonomy with support

8.5

Technology, software and CRM support

8.4

Marketing and brand awareness

7.5

Training and education

7.4

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Tierce, who’s also become a sought-after speaker at industry events, says her secret to success boils down to a few simple precepts. “I would say there would be three points,” she says. “Number one: if you take really good care of people—both people who refer you and clients who are referred—business will come, so don’t think about the money. I focused on providing the best possible experience for my realtors and my clients.” Tierce also stressed being honest with borrowers, even when she has to tell them things they don’t want to hear. “Tell the truth, nothing but the truth—absolutely always,” she says. “Even when it’s hard, even when you wish you didn’t have to. “Truth is tantamount to everything that I do, both as a leader and a manager and professional,

“If you take really good care of people—both people who refer you and clients who are referred—business will come, so don’t think about the money. I focused on providing the best possible experience for my realtors and my clients” Amy Tierce, regional vice president, Fairway Independent Mortgage and as a human being on the planet. “Third, underpromise and overdeliver,” Tierce adds. “But more than anything, your word is your promise. We’re always dealing from a point of strength and integrity.”

Are you the next GEM waiting to be discovered? Golden Empire Moprtgage (GEM) was founded in 1987. We match unparalleled product mix and pricing with state-of-the-art technology to create a platform designed to support the purchase market. Our seasoned management team will provide the necessary leadership to grow your business to the next level. If you are a branch or loan originator funding at least $3 million per month and source your business from Realtor referrals and past clients, we want to talk to you.

Call Joe Ewens at 800-320-1758 www.gembranchinfo.com Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act NMLS#2427, Arizona Mortgage Banking License #0906440, Oregon Mortgage License #ML2891, Washington Department of Financial Institutions License #CL-2427

MARCH 2014 | 33

BRANCH NETWORK OPPORTUNITIES / GUIDE

Accounting

In-house underwriting

Lead gen

CRM

In-house pricing engine

FHA

USDA

Jumbo

Reverse

203K

Luke McCann

www.advisorsmortgage.com

877-507-1800

All Western Mortgage

Karl Holt

www.awmnow.com

888-296-0300

Alpine Mortgage Planning

Jeff Stode

www.alpinemc.com

503-718-9850

AmCap Mortgage

Brandon Armstrong

www.joinamcap.com

800-590-4314

Amerifirst Home Mortgage

Rick Koenig

www.amerifirst.com

800-466-5626

Axia Home Loans

Rich Johnson

www.axiahomeloans.com

208-333-0010

www.bayeq.com

800-229-3703

www.carringtonhomeloans.com

949-517-6064

www.catalystlending.net

602-770-6080

www.coletaylormortgage.com

248-889-6504

www.continentalhomeloans.com

800-965-0437

CONTACT

Bay Equity Carrington Mortgage Services

Tom Shaw

Catalyst Lending Cole Taylor Mortgage

Mark Janssen

Continental Home Loans

WEBSITE

PHONE

Envoy Mortgage

TL Huynh

www.envoymortgage.com

877-232-2461

First Financial Services

Derek Boles

www.bestbranchopportunity.com

855-750-3374

www.firstmortgage.com

909-391-1739

First Mortgage Corp

Mark Ballantyne

www.branchleader.com

877-569-3328

FMC Funding

David Goldberg

www.fmcfund.com

888-297-4440

Gateway Funding

Kevin Reich

www.joingatewaynow.com

877-317-2045

Gateway Mortgage Group

Dane Basham

www.gatewayloan.com

888-317-1974

Gold Star Mortgage Financial Group

Shawn Sirko

www.goldstarbranch.com

866-249-2190

Golden Empire Mortgage

Joe Ewens

www.gembranchinfo.com

800-320-1758

Flagship Financial Group

Commercial

Licensing

Marketing

Advisors Mortgage Group

NAME

Manufactured

Benefits

Compliance

Your complete guide to the most up-to-date branch network opportunities

Search this database online at www.mpamag.com 34 | MARCH 2014

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in the mortgage origination industry

AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL

IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY

Please contact Sarah Swan at sarah.swan@keymedia.com to include your branch network MARCH 2014 | 35

BRANCH NETWORK OPPORTUNITIES / GUIDE

HomeBridge Financial Services

Kevin Krueger

www.homebridge.com

732-546-8882

Hometown Lenders

Eric Tishaw

www.hometownbranch.com

888-606-8066

www.ikonfg.com

843-256-5100

IKON Financial Group

Alex Barnett

www.joiniffg.com

866-606-4334

Integrity Mortgage Group

William Wolfe

www.integritymtgs.com

877-772-3350

iServe Residential Lending

Rick Trew

www.joiniserve.com

615-869-0408

Jet Direct Mortgage

Peter Pescatore

www.jetdirectmortgage.com

631-574-1306

www.usekeystone.com

480-899-9445

Keystone Financial Services Land Home Financial Services

Sean Stafholm

www.lhfinancial.com

888-415-2000

The Lending Company

Alleen Marcus

www.jointhelendingcompany.com

800-351-1688

www.libertyhomeequity.com

866-751-6112

Liberty Home Equity Solutions

Loan Simple

Jason Dozois

www.joinloansimple.com

303-565-2603

The Money Store

Paul Funesti

www.themoneystore.com

973-805-2005

Mortgage Master

www.mortgagemaster.com

888-263-1435

Mortgage Solutions Financial

www.msfhome.com

877-899-3614

Mountain West Financial

Michael Delehanty

www.mwfinc.com

888-793-6470

Nations Lending Corp

Jeremy Sopko

www.nlcmortgageloans.com

866-447-0266

www.nanationwidemortgage.com

866-654-9300

Nationwide Mortgage

Search this database online at www.mpamag.com 36 | MARCH 2014

Integrity First Financial Group

Commercial

203K

Manufactured

Reverse

Jumbo

FHA

USDA

CRM

In-house pricing engine

800-283-8823

www.guildmortgage.com

Guild Mortgage Company

Lead gen

262-901-1444

www.gogsfbranch.com

Accounting

Chad Jampedro

In-house underwriting

WEBSITE

Licensing

CONTACT

Marketing

GSF Mortgage Corp

PHONE

Benefits

NAME

Compliance

Your complete guide to the most up-to-date branch network opportunities

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in the mortgage origination industry

AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL

IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY

Please contact Sarah Swan at sarah.swan@keymedia.com to include your branch network MARCH 2014 | 37

BRANCH NETWORK OPPORTUNITIES / GUIDE

203K

Commercial

Reverse

Manufactured

Jumbo

FHA

USDA

Lead gen

CRM

888-852-4151

www.newpennfinancial.com

Accounting

301-956-2902

In-house underwriting

www.newamericafinancial.com

In-house pricing engine

New Penn Financial

PHONE

Licensing

Todd Sheinin

WEBSITE

Marketing

New American Financial Group

CONTACT

Benefits

NAME

Compliance

Your complete guide to the most up-to-date branch network opportunities

Norcom Mortgage

James Morin

www.norcommortgage.com

860-899-3807

NOVA Home Loans

Lance Dickson

www.novahomeloans.com

520-202-5231

Open Mortgage

www.openmortgage.com

888-602-6626

Paramount Residential Mortgage Group

www.prmg.net

866-776-4937

Parkside Lending

www.parksidelending.com

415-771-3700

www.goperl.com

949-292-5507

PMAC Lending Services Steve Channen

www.pmac.com

866-433-6886

PNC Mortgage

www.pncmortgage.com

800-822-5626

www.branchpartner.com

888-678-5493

www.psmwwyh.com

405-753-1900

PERL Mortgage

Primary Residential Mortgage

John Perez

Charles Edington

PrimeSource Mortgage

Residential Home Funding Corp

Frank Kuri

www.rhfunding.com

866-319-4442

Reverse Mortgage USA

Mike Suits

www.wholesalermusa.com

800-748-1184

www.semperbranch.com

401-519-2387

Semper Home Loans

Sierra Pacific Mortgage

Sean Browning

www.sierrapacificmortgage.com

800-447-3386

Stearns Lending

Jeremy DeRosa

www.stearnsretail.com

877-850-8292

Supreme Lending

Bill Harp

www.supremebranch.com

214-888-7057

www.unitednorthern.com

800-800-2023

www.bestbranchcompany.com

888-482-6395

United Northern Mortgage Bankers VanDyk Mortgage Corp

Joe Dishinger

Search this database online at www.mpamag.com 38 | MARCH 2014

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in the mortgage origination industry

AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL

IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY

Please contact Sarah Swan at sarah.swan@keymedia.com to include your branch network MARCH 2014 | 39

INDUSTRY ICONS / GLENN STEARNS

CALI

40 | MARCH 2014

MPAMAG.COM

IFORNIA

REAMING In the first of a new run of industry icon profiles in MPA, Ryan Smith takes a look at the extraordinary career of Glenn Stearns, founder of Stearns Lending

One of the top lending companies in the nation began on a park bench in Corona del Mar, California. That’s where Glenn Stearns was sitting 25 years ago when he had the epiphany that would change his life. “I grew up in Rockville, Maryland, and went to college out there, and decided to jump in a car with my friend one day and drive across country,” Stearns says. “We made it out to California and I found myself literally sitting on a bench in Corona del Mar one day, and I just got inspired and thought, ‘I want to do something with my life.’” Across the street from the bench was a beautiful house. Stearns knew then that he wanted a career that would allow him to live in a home like that one day. “I walked up to a man in the yard cutting bushes and flowers and such, and said, ‘How did you get this? What did it take?’ He said, ‘I’m the gardener.

I have no idea. But I think the man’s in real estate.’ Literally, that moment, I decided, ‘I’m going to get into real estate.’ And it was all from that gardener. “I became a loan officer for a broker, and I did that along with being a waiter,” Stearns says. “Talk about being green and not knowing what you’re doing—but you’ve got to start somewhere, right? I literally was an originator on the streets, hitting it hard and working with real estate agents and financial planners, anywhere I could find a loan. I did that for 10 months, then I decided to start the company with a friend. Talk about ignorance is bliss —I had no idea what I was getting myself into. The luck of it being that it was 25 years ago. With the advent of the CFPB and everything else that’s come along, there’s no way I could have done that today.” Stearns started the company in 1989 and became a broker. “Probably within the first six months I thought, ‘How do I become a banker?’” he says. “I always had that quest to keep looking over the next mountaintop, so to speak.” Stearns also started a title and escrow company, but business was slow in finding him. Undaunted, Stearns pursued a contract with the Department of Housing and Urban Development (HUD). “In the nineties we became the largest HUD

MARCH 2014 | 41

INDUSTRY ICONS / GLENN STEARNS

settlement provider in the country. We did about 75% of all the transactions in the country for HUD. We became the largest auditor for HUD through our auditing company. Just about everything that had to do with monitoring the mortgage originators and FHA originators we did for the government, so I had a great lesson on what HUD was looking for and how to do it right. It was a great foundation for me, as I had this small mortgage company.” Around 2001, however, HUD consolidated and started phasing out larger business contractors. “By then we were a large business,” Stearns says. “So I really put my emphasis back on the mortgage business.” At that point, Stearns Lending had around 500 employees and was funding about $200m a month. But he was watching his competitors grow even faster as a new craze hit the industry—subprime lending. “There was always this deep reservation not to do subprime,” Stearns says. “I just never fell into that. After about five years of watching these huge companies getting gigantic with subprime, I had to question myself. But deep down, I knew they just weren’t good loans. So we ended up not growing as big as everyone else, but we just kept our core competency, which was A-paper. … In 2005, everybody was making so much money. But it felt 42 | MARCH 2014

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irresponsible if you took the money out of the equation and thought, ‘Am I doing the right thing?’ So that was kind of a pivotal moment for our company.” But that reluctance to join the subprime boom had consequences. “We were having all our business go away because everybody else would do the loan and we wouldn’t do the loan,” Stearns says. “So it was really rough. By the time 2007 came, we had taken every loan that wasn’t a government or conforming loan and said, ‘We’re not going to do it.’ In September of 2007, we did $19m in loans. We’re basically out of business. We’d lost 85% of our revenue; we were down to maybe 70 people.” Stearns’ business was sinking fast. And then the subprime crash came. “I was trying to dig myself out, and then big companies started going under,” he says. “At that moment, I was literally taking cubicles out of my building. I didn’t need them anymore. I’m literally in the room saying, ‘I need these out of here,’ when my assistant comes in and says, ‘Glenn, these companies are going out of business.’” Stearns bought back the cubicles. The same day, he found out that one of his competitors was shutting his doors. Stearns saw an opportunity. “I called the guy and I said, ‘I’d really like to talk to you.’ I spoke with him the next day and said, ‘I want to hire all the people in your office, from the receptionist to the shipper. I think A-paper is going to be the only thing now, and you’ve got a team that I never could have assembled.’ That was a Saturday, and by Wednesday I had them in my office.” Soon Stearns was opening five new offices. It was a gamble even his colleagues questioned. “I had my CFO and my president sit me down and say, ‘Glenn, are you crazy? The world is falling apart. Why are you opening these offices?’ I said, ‘I’ll never have an opportunity to assemble a team like this again. We’re either going to implode or hit it out of the park.’” They hit it out of the park. Stearns Lending has since become one of the top lenders in the nation. In 2011, Stearns himself became the youngest person ever inducted into the Horatio Alger Association of Distinguished Americans, an organization for selfmade professionals. “We went from that $19m in September of ’07 to $13.3bn last year,” he says. “It’s been a hell of a ride. Watching this journey has been a thrill.”

MPAMAG.COM

As the OCC and CFPB tighten regulations, it’s crucial that you plan for the significant compliance changes taking place this year. Will your current AMC partners hold up against an audit? And will your business survive if they don’t? Contact us today to learn how StreetLinks’ industry-leading nationwide appraisal management (AMC) services can keep you compliant in 2014.

p: 1.800.778.4920 e: sales@streetlinks.com www.streetlinks.com

FEBRUARY 2014 | 43

FEATURE / QM SOLUTIONS

HOW DO YO A PROBLE

44 | MARCH 2014

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OU SOLVE M LIKE

QM? As a mortgage professional you would have had to be living under a rock to avoid hearing about the anxiety that the two letters QM have been causing in originator circles. Now that the new rules are in place, Ryan Smith explores how to navigate the post-QM landscape

There was a lot of doomsaying last year during the run-up to the implementation of the Consumer Financial Protection Bureau’s new ‘qualified mortgage’ rule. Industry leaders painted pictures of brokers going out of business and would-be borrowers being forced out of the market. But QM arrived on the scene despite the protestations of originators. And now that it’s here, the question is: how can mortgage pros keep their businesses humming in the new regulatory environment? The answer, according to many in the industry, is to embrace technology solutions that can keep you on the right side of compliance.

MARCH 2014 | 45

FEATURE / QM SOLUTIONS

“Traditionally, underwriting was done with a pen and a slide rule on a worksheet,” says John Levonick, chief legal and compliance officer at Accenture Mortgage Cadence. “Today that’s no longer really valid. The originator has to make sure they have the technology to evaluate the loan on each of the qualified mortgage classifications.” Accenture’s executive vice president of marketing, Dan Green, agrees: “The only way to deal with today’s compliance environment is great technology. You need technology that helps lenders and originators meet requirements. You can’t do it with a calculator and a piece of paper anymore.” The secret for smaller lenders is to farm out compliance to third-party specialists, according to Reid Smeda, president of Compliance Systems, Inc. “I think the texture and layers to [QM] aren’t all that difficult to keep your arms around, but if you don’t have a resource dedicated to the business, that could be fatal,” Smeda says. “…I think the best strategy in the short term is to get someone in who can provide analytical counsel for the products offered. I think it’ll have to become more mechanized as time goes on. The secret to success is going to be outsourcing to third parties.”

“This industry, in the heyday of the early 2000s, got used to cutting corners, to closing loans in 24 to 48 hours” John Levonick, chief legal and compliance officer, Accenture Mortgage Cadence Levonick says going it on your own can be a recipe for disaster when you don’t have the relevant compliance expertise. “Historically, lenders got into so much risk because they managed their own proprietary systems that were effectively a hodgepodge.” Both Accenture and Compliance Systems have created technology specifically designed to help originators thrive in a post-QM environment. Both merge tasks that are often spread across several systems into a single software solution. “The Accenture Mortgage Cadence product offering has been tailored to help customers originate qualified mortgages. Trying to integrate 46 | MARCH 2014

QM REQUIREMENTS The qualified mortgage category isn’t necessarily a ‘one size fits all,’ but there are certain mandatory requirements for all QMs: •• Points and fees less than or equal to 3% of the loan amount (higher percentages are allowed for loans less than $100,000) •• No ‘risky features’ such as negative amortization, interest-only or balloon loans (although balloon loans originated until January 10, 2016, and that meet all other requirements, are QMs if originated and held by small creditors) •• Maximum loan term no more than 30 years

multiple disparate systems is not a strategy that works any longer,” Green says. “What lenders need is a single comprehensive system that integrates all of that. “The other thing [Accenture] does that is somewhat unique is that all of our technology is delivered through the cloud,” says David Coleman, Accenture deployment specialist. “That has multiple benefits. As rules change, cloud-delivered software is updated by us, so we get updates to all customers at the same time. It also makes it accessible and affordable for all lenders.” Compliance Systems’ software, meanwhile, runs in the background of an LOS, analyzing loan information for red flags. “We provide transaction risk management that analyzes the intelligence within an LOS,” Smeda says. “We’re interrogating the data as it comes through, and based on our interrogation of the data, we can identify some risks for that loan as it comes through. Our data’s operating in the background and identifying data on the loan. Then we can say, ‘Oh, you’re trying to do a product type that’s not permitted under state law, so you can’t do that unless you do this other thing.’ “We can help mitigate the risks. We start off with the transaction, we analyze that transaction, and at the end of that we produce a list that says, ‘Here’s the documents you need, here’s the data you need, and here’s the words you need to use.’” The value of choosing a comprehensive solution over a hodgepodge of compliance programs, they

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say, is in producing uniform documentation that can stay with the mortgage throughout its life. “The importance here is enforcing a uniformity throughout the process. And in addition to uniformity, the maintaining and creation of the proper documentation to support your determinations is extremely important,” Levonick says. “The evaluations have to be memorialized in a way that can follow that mortgage for the life of the loan. The underwriter needs to document what they took into consideration. In the event a regulator or third-party investor questions what went into the loan, they need to look into the loan file to see what the underwriter’s state of mind was at the time of the loan. Gut instinct, the relationship with the borrower—all that’s out the window. It’s all about documentation.” At the end of the day, Smeda says, “all words— whether they’re communicated electronically, through smoke signals, or semaphore—they’re just data. The key isn’t, ‘Do you have an 8½ by 11 piece of paper?’ The key is, do you have the content to memorialize all those risks?” Levonick adds: “This industry is very, very much rooted in what was done yesterday. This industry, in the heyday of the early 2000s, got used to cutting corners, to closing loans in 24 to 48 hours. The

QM CATEGORIES The CFPB has defined three main categories of qualified mortgages:

1 2

GENERAL DEFINITION CATEGORY Any loan that meets QM product feature requirements with a debt-to-income ratio of 43% or less.

GSE-ELIGIBLE CATEGORY Any loan—regardless of debt-to-income ratio—is a QM if it meets QM product feature requirements and is eligible for purchase, insurance or guarantee by Fannie Mae, Freddie Mac, the FHA, VA or USDA. This category applies for GSE loans as long as the GSEs are in government conservatorship or until January 10, 2021, whichever occurs first.

SMALL CREDITOR CATEGORY If you have less than $2bn in assets and originate 500 or fewer first mortgages per year, loans you make and hold in your portfolio are QMs provided you have considered and verified the borrowers’ debt-to-income ratio. However, no specific DTI limit applies to this category.

“I think the texture and layers to [QM] aren’t all that difficult to keep your arms around, but if you don’t have a resource dedicated to the business, that could be fatal” Reid Smeda, president, Compliance Systems, Inc argument’s been made that the insufficiency of the documentation on some of those loans is one of the reasons we’re in the situation we are today.” Using third-party technology solutions doesn’t just help smaller lenders keep in compliance, Levonick says—it also boosts efficiency. “It might take two years to build a custom hotrod, but a GM plant can turn out a car in 72 hours. Leveraging technology reduces time required to underwrite, and increases efficiency,” he says. “Ultimately, if originators hesitate to embrace technology, they’re going to struggle. The only way to be successful—the only way to survive—is to leverage the proper technology.”

And success in the post-QM environment is critical, Levonick says—because, for better or worse, QM requirements are here to stay. “The underlying theme of what these regulations are trying to accomplish is that the federal government wants to ensure that there are no corners that can be cut,” Levonick says. “Gone are the days of cutting corners. There are objective standards that must be met.” Coleman adds: “This is big stuff, and people don’t want to change, but that’s the way it is now. “But if you really think about it, it’s the way we were all taught to lend. Borrowers have to be able to repay their loans.” MARCH 2014 | 47

BUSINESS STRATEGY / COMMUNICATION

CLIENT COMMUNICATION DIGITAL VS ANALOG As blogs, newsletters and videos become normal modes of client communication, financial services professionals are heading into a brave new world of digitization. But, as Anders Sorman-Nilsson argues, while new online communication channels can’t be ignored, old-school communications are key to connecting with your customers’ enduringly analog, emotional hearts

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We are entering a world of ‘digital disruption’: the idea that everything that can be digitized will eventually be digitized. This includes the customer service and marketing touchpoints that are essential tools for financial services professionals seeking to win the hearts and minds of tomorrow’s customer. Digital disruption is a force to be reckoned with for financial services professionals such as mortgage professionals, financial advisers and insurance brokers, but it doesn’t mean that everything that can be digitized should necessarily be digitized. It’s essential to pay careful attention to your communications mix so that you don’t throw out the analog baby with the digital bath water. While the digital world represents a shiny new penny that is key to engaging with the customer’s increasingly digitized, rational mind, old-school communications remain vital to connecting with the customer’s enduringly analog, emotional heart. The digital world disintermediates the relationship between financial and bricks-and-mortar investments and the end consumer, and that consumer is increasingly doing their due diligence digitally. This means that you run the risk of being digitally disintermediated unless you start providing more value to the customer, via both digital and analog channels. Think about it this way: digital is phenomenal for attracting new clients, and analog is great for retaining (cross-selling and closing) existing clients. Thus, you need to become a thought leader in the way that you provide informational, rational value to clients’ increasingly digital minds, while still connecting emotionally with their enduringly analog hearts. To be able to compete with digital comparison portals, and to protect yourself against digital disintermediation, it’s critical that you figure out which touchpoints you should digitize and which ones you shouldn’t digitize. This isn’t a choice between either the digital or the analog channel. Instead, you must go ‘digilog.’ Here’s how you can do this.

PROVIDE VALUE TO DIGITAL MINDS Put your industry thought leadership and professional expertise on the digital line by creating a great blog and newsletter, and a well-designed, interactive website. Create a ‘4-2-1’ digital content schedule: blogging four times per month, sending two digital newsletters per month, and creating engaging and educational video content at least once per quarter. For example, a mortgage professional in Williamsburg, NYC, could create a 4-2-1 digital content schedule to provide informational value to clients’ (and prospective clients’) digital minds, while also boosting their Google rankings. It would look something like this:

‘4-2-1’ DIGITAL CONTENT SCHEDULE BLOG 1. “The impact of the economy on mortgages in Williamsburg” 2. “3 things to think about when buying in Williamsburg” 3. “Do’s and don’ts when talking about mortgages with the major banks” 4. “Top 7 questions to ask yourself when choosing a mortgage in Williamsburg” DIGITAL NEWSLETTER 1. “3 tips to ensure a thicker wallet with the right home loan” 2. “Williamsburg property trends—why the time is right!” VIDEO 1. Interviews with happy clients who now reside in Williamsburg, or video footage of lifestyle factors such as cafes and restaurants in the area

It’s absolutely necessary to make each tangible analog encounter with clients, and prospective clients, world class MARCH 2014 | 49

BUSINESS STRATEGY / COMMUNICATION

BEING SEEN You must be seen in the digital world. Your prospects need to start trusting you as a thought leader in the digital world before making an approach to see you in the analog world. In the digital world, where clients are doing their digital due diligence, offering engaging content is king. Creating search-engine optimized, localized content that can be easily accessed by a prospect contextually via mobile devices will be key to your success in winning digital minds. For example, have content on offer that your clients can view while they’re walking up the street in your area and checking out property.

Big deals are usually still sealed with a handshake. There is something about the ritual of signing on the dotted line … that the digital world still cannot mirror CONNECT WITH ANALOG HEARTS

Anders SormanNilsson is a global futurist, innovation strategist, keynote speaker at TEDx and author of the new book, Digilogue: How to Win the Digital Minds and Analogue Hearts of Tomorrow’s Customer. Visit http://digiloguebook. com for more information

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While it is critical that you, as a finance professional, are digitally accessible and provide value to digital minds, you also have to ensure that you connect deeply with analog hearts. Traditionally and enduringly, most transactions take place in the analog, face-to-face world. Big deals are usually still sealed with a handshake. There is something about the ritual of signing on the dotted line with a Montblanc pen, for example, that the digital world still cannot mirror. It’s absolutely necessary to make each tangible analog encounter with clients, and prospective clients, world class. If a client, or prospective client, decides to spend analog, face-to-face time with you, you must show incredible respect for the time they invest with you by connecting deeply with their analog hearts.

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In June 2013, when I spoke at the Million Dollar Round Table for global financial advisers and insurance professionals in Philadelphia, I gave the following recommendations. Have a think about them:

RECOMMENDATIONS • Scenario planning and consulting on a one-on-one basis with your client My financial advisers do this incredibly well. We sit down each quarter face-to-face and revisit goals and the long-term plan. They provide me with hindsight, insight and foresight based on our plan, while providing a sense of partnership during these conversations. • Writing a handwritten card This will remind the client of their investment and savings goal, or congratulate them on goals achieved. When I was working with mortgage professionals, one originator said that writing handwritten notes was his key way of adding analog value and ensuring he retained his clients’ loyalty. • Hosting investment and financial literacy workshops for clients and their friends This is a great way of adding value to existing relationships, while also building a pipeline of trusted referrals. • Speaking at industry conferences This will boost your personal brand and thought leadership credentials, and harness your financial networks (accountants, mortgage professionals, stockbrokers, banks, etc.) both for speaking opportunities and face-to-face introductions. If you become a trusted adviser and thought leader within your industry, the likelihood is that the industry will talk about you. This in turn can generate positive PR and recommendations.

There is a time to be digital and there is a time to be analog. Financial services professionals must ensure they find the correct blend. Digital is phenomenal for attracting new clients and for boosting your own digitally amplified branding, while analog can be great for building enduring trust, retaining business, and closing deals. Increasingly, you must learn to shift seamlessly between the digital and analog worlds. In one word, you must start becoming ‘digilog.’

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FEBRUARY 2014 | 51

BUSINESS STRATEGY / DATA

DATA ARTISTRY FINDING BUSINESS VALUE IN DATA

Data science is the new ‘rock star’ business profession that picks up where big data and analytics leave off. Tim Phillipps argues that, to become more predictive, organizations should recruit those who see the future and others who can visualize it for the rest of us 52 | MARCH 2014

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Worldwide gaming, resorts and hotel empire Caesars Entertainment analyzes data from slot machines to present real-time offers and marketing promotions to its patrons. While organizations are building their in-house ability to use data to peer into the future, Kaggle, a platform that allows organizations to crowd-source data scientists, has attracted the backing of Silicon Valley high-flyers who were behind the online payments platform PayPal. Kaggle allows organizations to farm out complex business problems to data scientists around the world in return for cash prizes. Although data science is the future of decisionmaking, organizations must hurdle two obstacles. First, they must bridge a skills gap and, second, understand and act on the predictive business insights that data scientists produce.

A SHORTAGE OF SCIENTISTS The ‘data scientist’ is a new breed of analytics professional who takes an experimental approach to analyzing data. Professor Thomas H Davenport, visiting professor at Harvard Business School, is one of the world’s foremost authorities on data science and a senior adviser to the Deloitte Analytics Institute. He says a data scientist is “part hacker, part quantitative analyst, part trusted adviser and part scientist.” Organizations are interested in data science because it has the potential to transform business models and create new ones. It also replaces gut instinct with data-driven decision-making and is the basis of a new form of competitive advantage that is difficult to replicate. Consider the following examples. LinkedIn owes much of its success to the ‘people you may know’ function—an experiment instituted by its former chief data scientist, DJ Patil, who also coined the term that applies to the new profession. GE realized that the growing amount of data produced by sensors in the firm’s gas turbines, jet engines and other industrial products could be collected and analyzed in real time to improve machine performance and operations, turning unscheduled maintenance into scheduled maintenance and identifying potential operational disruptions before they occurred. The insights it has drawn from its devices are already improving the efficiency of its customers’ businesses, saving them anywhere from tens of thousands of dollars to millions for each analytics-based service.

A survey carried out last year by EMC revealed that two thirds of data science practitioners expect demand to outpace supply over the next five years. Even first-year business students know what happens when demand exceeds supply: prices go up. We’re already seeing this, with organizations willing to pay top dollar for data scientists. However, this is a risky strategy. It involves considerable expense, and there’s no guarantee an individual will be a good cultural fit.

Organizations are interested in data science because it has the potential to transform business models and create new ones So, where can organizations find the data scientists of tomorrow? Mark Grabb, analytics technology leader at GE’s Global Research Center in New York, suggests that PhD graduates are likely to continue to be a major source of data scientists in coming years. The private sector, universities and industry bodies like INFORM are also developing tailored data science courses. However, there’s a question as to whether these courses are teaching the right skills. Most of the courses that are currently being developed MARCH 2014 | 53

BUSINESS STRATEGY / DATA

Decisionmakers have to be able to absorb the insights from data science to effectively use them to solve problems

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THE KAGGLE STORY focus on the data cleaning, mining and analysis skills necessary for data scientists to do their job. However, less attention is being paid to the ability to communicate those insights, says Davenport. “Communication still doesn’t have the importance it should in most programs,” he says.

MARRYING ART WITH SCIENCE Bridging the communication gap is of paramount importance. It’s great to have a team of big brains that can crunch data, but their efforts are useless if they can’t explain what they find to decisionmakers. Communicating the message hidden within data requires a rare capability to combine the right-brain analysis with the left-brain creativity needed to communicate with non-specialists. This isn’t just about running experiments with data; it’s about being able to paint a picture with the results. In many respects, this skill is more art than science, namely ‘data artistry.’ There are two key elements to data artistry. First, the data artist must be able to speak both the language of data and the language of business. Second, data artists need to be able to tell stories with data, understanding the most effective way to communicate results and being able to work with different media to deliver those insights. This typically involves using data visualization tools. In the past, these might have been static reports, PowerPoint presentations, heat maps and charts. Now, data artists are increasingly turning to new and more creative ways of telling stories with data. They are now using audio-visual presentations, dynamic charts, interactive games, 3D models and apps to convey meaning.

WHAT CAN ORGANIZATIONS DO?

Tim Phillipps is the DTTL global leader of Deloitte Analytics and is responsible for Deloitte Analytics Institute Asia. He is an authoritative voice on the application of analytics as a source of managerial insight and competitive advantage

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In the short term, organizations will struggle to find a professional who embodies a data scientist and data artist in the one ‘rock star’ package. A better approach is to create rock bands: data science teams with a breadth of expertise. By focusing on forming teams, organizations can blend a mix of top skills without staking everything on a single risky hire. It also enables organizations to fish in a wider ocean of talent, rather than the existing pool of data professionals. You can hire in specialists in particular areas: data scientists to run experiments, industry specialists who can apply analytical insights to their work, or even computer games programmers and animators to devise data visualizations.

Founded in Melbourne, Australia, in 2010, startup Kaggle is an online marketplace that connects organizations with the world’s best data scientists. Now based in San Francisco, the company has two products: 1. Data science competitions for optimizing a company’s existing algorithms 2. A matchmaking service called Kaggle Connect, which connects companies to data scientists who can help them solve challenging data science problems (whether new or existing) With competitions, companies can post data sets and problems to Kaggle, and the community of 100,000 data scientists compete to create the best solution. Competitions are effective for well-specified problems, where predictive accuracy is most important. Good examples include retailers that want to forecast demand more accurately (to optimize pricing and prevent out-of-stock situations) and insurance companies that want to more accurately predict risk. For less well-specified problems, Kaggle provides a matchmaking service called Kaggle Connect, which matches companies with a data scientist who has a track record of solving a particular problem (as demonstrated through their competition performances). Kaggle Connect is suitable for problems such as helping retailers and CPG companies optimize their pricing, or telecommunications companies better target their customers or potential customers with personalized marketing offers or customer retention initiatives. The Kaggle Community now contains over 100,000 data scientists, including many of the world’s biggest names (from the IBM Watson team to the Google Prediction API team). Deloitte Australia announced on May 28, 2013, that it had entered into a preferred alliance with Kaggle. This alliance will combine Deloitte Australia’s analytics, business advisory, technology and process consultants with Kaggle’s data scientist network to bring the best analytics solutions to clients.

Finally, tapping into external sources of expertise can bridge skills gaps, benchmark your own approaches against the latest advances in techniques and technology, and source talent in specific analytical areas. The Deloitte Analytics Institute is one such centre of excellence; alternatively, organizations like Kaggle offer affordable access to data scientists around the world on a project-by-project basis.

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BUSINESS STRATEGY / MANAGEMENT

THE (R)EV

OF MANAGE If you want innovation and growth, you need to engage your people on a whole new level, argues Therese S Kinal Management is in need of a revolution. And not just one on glossy academic paper, but one that actually changes how organizations think and act. Despite the inspirational stories we read about companies like Zappos, Innocent Drinks and Google, the truth is that most of us are using outdated management practices and failing to get the most out of our people. Not convinced? Consider this: • 65% of people are unhappy at work (Right Management, Manpower Group, 2012 online survey) • Only 14% understand their company’s strategy (Smither, JW, and London, M. (2009) Performance management: putting research into action) • 75% are seeking jobs as we speak (Jobvite’s Social Job Seeker Survey, 2012)

Today’s leaders face increased complexity and ambiguity, and employees and customers alike are demanding engagement, transparency and responsibility. One billion people are now on Facebook, and 500 million Tweets get sent every day. Customers don’t want to be sold to. They want to connect with brands and play a role in the development, sales and marketing of products. If we ever thought we had ‘control,’ it’s definitely gone now. 56 | MARCH 2014

All of this presents a new challenge for how we think about and practice management and how we develop leaders that can excel in this brave new world. But before we look at the future, let’s take a look in the rear-view mirror and see how we got to where we are today:

1910S–1940S: MANAGEMENT AS SCIENCE ‘Management as science’ was developed in the early 20th century and focused on increasing productivity and efficiency through standardization, division of labor, centralization and hierarchy. A very ‘top down’ management style with strict control over people and processes dominated across industries.

1950S–1960S: FUNCTIONAL ORGANIZATIONS Due to growing and more complex organizations, the 1950s and 1960s saw the emergence of functional organizations and the human resource (HR) movement. Managers began to understand the human factor in production and productivity, and tools such as goal setting, performance reviews and job descriptions were born.

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VOLUTION

EMENT 1970S: STRATEGIC PLANNING In the 1970s we changed our focus from measuring function to resource allocation and tools such as Strategic Planning (GE), Growth Share Matrix (BCG) and SWOT were used to formalize strategic planning processes. After several decades of ‘best practice’ and ‘one size fits all’ solutions, academics began developing contingency theories.

more holistic, organization-wide approach and strategy implementation took the stage, with tools such as Strategy Maps and Balanced Scorecards.

1980S: COMPETITIVE ADVANTAGE

2000S: BIG DATA

As the business environment grew increasingly competitive and connected, and with a blooming management consultancy industry, competitive advantage became a priority for organizations in the 1980s. Tools such as Total Quality Management (TQM), Six Sigma and Lean were used to measure processes and improve productivity. Employees were more involved by collecting data, but decisions were still made at the top, and goals were used to manage people and maintain control.

Largely driven by the consulting industry under the banner of ‘Big Data,’ organizations in the 2000s started to focus on using technology for growth and value creation. Meanwhile, oversaturation of existing market space led to concepts such as Blue Ocean Strategy and Value Innovation.

1990S: PROCESS OPTIMIZATION Benchmarking and business process re-engineering became popular in the 1990s, and by the middle of the decade 60% of Fortune 500 companies claimed to have plans for or had already initiated such projects. TQM, Six Sigma and Lean remained popular, and a

A WHOLE NEW LEVEL After a century of trying to control people, processes and information, we have come to a point in organizational history where we need to recognize that what worked before just simply isn’t enough anymore. Traditional management is fine if you want compliance, but if you want innovation and growth, you need to engage your people on a whole new level. In our research, we looked specifically at the evolution of the management approach and the MARCH 2014 | 57

BUSINESS STRATEGY / MANAGEMENT

We need to recognize that what worked before just simply isn’t enough anymore

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approach to innovation/problem solving, and at how these would develop in the future (see graph, “The evolution of management”):

productive workforces is not about team-building exercises or lucrative benefit packages but about creating a working environment that offers purpose, mastery, challenge and autonomy, which in turn creates more business value than the traditional approach. Recently, Steve Denning wrote about the management revolution that’s already happening at Forbes.com. In the article, he discusses organizations like Apple, Zara and Whole Foods that have successfully forged ahead despite the increasingly challenging environment: “None of these organizations has arrived at any final state or equilibrium: in each case, management practices continue to evolve. Nor are any of these organizations perfect, as they have to cope with a context that is filled with contradictions. Their virtue lies in the creative energy with which they are pioneering new ways of adding value.” Steve makes some excellent points about the need to constantly reinvent ourselves, but I’m not sure if the revolution is already happening. In fact, I think it might be more of an evolution. And herein lies the problem. We need a revolution, not an evolution. We are armed with tons of research that supports a more holistic, human way of doing business. It is up to us to stop simply following best practice and translate our know-how into how we develop leaders and organizations that are more agile, innovative and purpose-driven… and, in doing so, breed the pioneers and market leaders of tomorrow.

1. Management approach: the style of top management, ranging from: a. Control (ie your boss tells you what to do and how to do it); to b. Set goals (ie your boss sets goals and expectations, but you have more freedom with regard to how you achieve them); to c. Inspire (ie your boss gives you scope and freedom to innovate on both the what and the how) 2. Approach to innovation/problem solving: how leaders solve strategic problems and develop new products and services. This ranges from: a. Top down (ie solutions are created and come from the top); to b. Top down with bottom-up data (ie the rest of the organization contributes information and experiences, but solutions are still created at the top); to c. Participatory (ie solutions are created collaboratively, and throughout the organizational levels)

Organizations of the future are neither consensus driven nor top down. They aren’t dictatorships, nor are they anarchies. They’re not merely occupied with increasing shareholder value or making their people happy. Leaders of the future know that the two go together, and that having happy and

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MANAGEMENT APPROACH

Top down w/ bottom-up Participatory data

Control

Top down

Therese S Kinal is the CEO and co-founder of Unleash, a disruptive innovator in the management education and consulting industry. She is the co-author of Unleashing: The Future of Work, and she writes, runs workshops and works with clients on a range of management issues

INNOVATION/PROBLEM SOLVING

THE EVOLUTION OF MANAGEMENT Set goals

Inspire

Unleashing Big data Competitive advantage

Process optimization

Strategic planning Functional organization Management as science

1910-1950

1960

1970

1980

1990

Source and copyright: UNLEASH SPP LTD. For more information, go to unleashteam.com

2000

2013 ->

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FEBRUARY 2014 | 55

MOTIVATION / PRESENTATION SKILLS

PRESENTATION

SKILLSand the

art of persuasion If you want to make a compelling case to a client or business associate and persuade them to do what you’re asking, it’s vital to hone your communication skills and use them to support your case. Cindy Tonkin offers seven essential strategies for making a world-class professional presentation You probably spend a large chunk of your life getting others to do things for you: persuading your boss to give you time off; influencing your spouse to spend time with you; convincing the kids to go to bed. But right now we are talking about major deals. You have to stand at the front of the room, take a deep breath, and make such a compelling case that they can’t say no. Here’s how you can do this:

Take a breath First off, it is important to start breathing. When you’re nervous you can hold your breath. This makes your brain stop thinking. It triggers a fear response in the brain: you retreat into defensiveness. You just want to run away or punch someone. So breathe. Practice deep breaths right down into your belly as you rehearse your presentation. Unclench your fists. Move your elbows away from your rib cage. If you find it hard to breathe, here’s a tip: speak lower and slower and your breath will slow down.

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Prepare the words Begin as you mean to end—calmly. Prepare the first two sentences. Practice them until they sound natural and normal. Then the rest will flow. You should also prepare the rest of the presentation, of course!

Use images and props If you stand up and use visual aids, your audience is more likely to be onside. And, according to research, they will spend 26% more on your product. Examples of visual aids include posters, photographs, PowerPoint images or actual props. If your audience tends to fiddle with pens or rubber bands or phones, give each person a prop; it will keep them focused as they listen. And if the prop promotes your business, that’s even better.

Practice what you will say It may seem obvious, but practice what you will say. It feels silly, but the more you do it the less it becomes so. Practice not just the words but how you will say them. People read your intention from your gestures. Consider what gestures you want to use, and choreograph your presentation. If you want to come across as open, open up your gestures. If you want to be seen as thoughtful, adopt the pose of the thinker. But you must practice this so it comes across naturally, not like a kid doing show and tell at kindergarten.

Don’t read to me In case you haven’t heard, there is an epidemic of death by PowerPoint. Your PowerPoint slide is not a substitute for palm cards. Do not put every word you will say on the slide. Choose an image that prompts you to remember what you need to say, or an image that intrigues the audience. If you must read to me, then read me something significant. If you feel you must have all the words on a slide, then pause so people can read the words for themselves. Then say what you want to say.

Focus on them, not you Working with hyperconfident, powerful people, I am constantly surprised to find how much some of them dread public speaking. Consistently, they focus on themselves and their shaking voice, their wobbly knees and whether someone will find out that they are fake. To calm your nerves, focus on the audience. The old advice of picturing them naked is just one device

for doing this. I suggest you pay attention to the small signs that tell you they are listening and interested. When your focus is on them, the room and its energy, then you can give them what they want. As an aside, know you always have the option to say: “I don’t know—I’ll get back to you.” You don’t need to know everything. In the age of the internet most information is available with a quick Google search. People do not expect you to be the internet. Take a moment upfront to clarify the audience’s ‘WIIFM’ (what’s in it for me). When you know what they want out of it, you know how to sell them rather than tell them.

Tell stories People will forget facts. They remember stories. Tell a ‘once upon a time’ story or a ‘funny thing happened on the way to the forum’ story—like a case study. Make it relevant and follow the three-step formula:

1. Incident (what happened) 2. Point (the punchline or payoff) 3. Benefit (why I am telling this story) Telling a story alone has an impact. Telling an enjoyable story and then making it relevant to the audience (the benefit) lifts you to professional level. If you can read, illustrate, and engage your audience, you’re well on the way to convincing everyone.

Cindy Tonkin is “the Consultant’s Consultant.” She is the author of seven books, including Setting Up Your Consultancy Business Profitably and Painlessly

MARCH 2014 | 61

LIFESTYLE / DAY IN THE LIFE

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Day in the life of... Chad Jampedro, president, GSF Mortgage Corp 6:15am: I normally get up in the morning about

1:00pm: I normally touch base with

quarter after six. I have two kids, so I get both of those kids ready for school. My daughter leaves for school about seven o’clock. My son goes to school later than her, so he leaves for school at 8:15. I send out an email every single business day to start the day with an inspirational quote that I’ve read. I normally get that email out between 6:30 and 7:30 in the morning.

our corporate attorney, who works on compliance, state licensing, branch licensing. We spend maybe an hour or so catching up on any issues that may touch on GSF. For instance, we recently worked on our QM policy. We probably touched on that every single day last month. We have to make sure that we’re maintaining it as well. We’re running reports to make sure that the plans we put in place are working and effective.

8:30–8:45am: The first thing I do every day is pull the Fannie Mae and Ginne Mae bond quotes. Then I look at our investors’ pricing and any locks that may have come through during the night … then get ready to set the benchmarks for pricing that day.

9:15–9:30am: I return emails and phone calls from the calls that I made the night prior. I handle recruiting with our sales manager, so I return the phone calls and emails from people who called me back, specifically focused on recruiting for new branches.

2:00–3:00pm: I’ll spend a little bit of time with our general manager on the operations side, looking at any issues she’s seeing on the ops side with processing, underwriting, loan closings. We talk about service levels every day. If our turn time is moving from 72 hours to 96 hours, for instance, we talk about how we’re going to get it back to 72 hours.

3:30–4:00pm: I’m going to try to return any calls 10:30am: I spend some time calling existing branch managers or loan officers who may have a question. I try to make sure that every branch manager is having a phone call with me every month—whether it’s just checking in, or if they have marketing ideas or something they want to run past me.

12:00pm: I normally touch base with our director of marketing, and we talk about how our lead sites have performed through the course of the day. We just go through those analytics, and also our website touches—how many unique visitors have been on our site that day.

12:30pm: I normally have lunch with Mike Maida, our national sales manager, and we catch up on whatever branch he’s working on. Whatever’s affecting the salespeople and is funneled through Mike, he’s bringing those issues to me. 14 | MARCH 2014

that have come in during the course of the day— investor phone calls, customer phone calls. We also have a social media site within GSF, and I like to go on there and post something positive and interact with the company that way. From there I go into recruiting and making those outbound phone calls to talk about GSF and what our offerings are. I also take some realtor partner phone calls. On Tuesdays and Thursdays both Mike Maida and I will stay late—until about 6 to 6:30—to take those phone calls.

5:30pm: Normally I try to get out of here between 5:30 and 6:00 if I can, then I go directly to the gym and spend about an hour. From the gym, I head back home and we start our nightly routine—dinner, homework, then we’ll spend a little time together as a family. Then bedtime for the kids, and myself and my wife will read for a while. Then we do it all again.

Chad Jampedro

I send out an email every single business day to start the day with an inspirational quote that I’ve read

LIFESTYLE / FAVORITES

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Favorite things Scott Gordon, founder and CEO, Open Mortgage When he’s not running the show at Open Mortgage, Scott Gordon likes to relax in Big Sky, Montana, or ride his motorcycle. And he’s a big fan of a certain Peter Weller movie—but it’s not Robocop

Scott Gordon

Vacation spot: Big Sky, Montana. There’s skiing, and it’s moose country, like Yellowstone. It’s just beautiful.

Sport: I’d say my favorite sport is motorcycle riding. That’s as a hobbyist rider, not a spectator. I don’t much like to watch other people do things.

Place to be: My favorite place to be is on my ZX-14R. It’s a Kawasaki crotch rocket. I was on that this morning – taping a video, of all things.

Drink: Iced tea. I almost said chocolate milk—but really, by truth and habit, it’s iced tea; I drink it all the time.

Music: If I gave a genre, that would give away my age. Well, I’ll just be honest and say Led Zeppelin.

Movie: The Adventures of Buckaroo Banzai Across the 8th Dimension. I thought it was funny and campy—and kind of smart, in a ridiculous way.

Celebrity: My favorite celebrity would have to be Harrison Ford. I just like the characters he portrays.

Food: Pizza. I have it about once a week.

Favorite thing about the mortgage industry: I like helping seniors—the whole reverse mortgage division. I’ve seen a lot of examples of where it truly changed people’s lives.

MARCH 2014 | 63

MARKET TALK / PREDICTIONS

outrageous economic predictions for 2014

These ‘outrageous’ predictions may not come true in 2014—but they could

Online multi-asset trading and investment specialist

Saxo Bank’s annual set of ‘outrageous predictions’ for the year ahead reveal some interesting views on where the global economy is headed. Although the probability of any of the predictions coming true is low, they are deduced strategically by Saxo Bank analysts based on a feasible—if unlikely—series of market and political events.

OUTRAGEOUS PREDICTIONS FOR 2014

1. EU WEALTH TAX HERALDS RETURN OF SOVIET-STYLE ECONOMY Panicking at deflation and lack of growth, the EU Commission will impose wealth taxes for anyone with savings in excess of EUR 100,000 in the name of removing inequality and securing sufficient funds to create a “crisis buffer.” It will be the final move towards a totalitarian European state and the low point for individual and property rights. The obvious trade is to buy hard assets and sell inflated intangible assets. 2. ANTI-EU ALLIANCE WILL BECOME THE LARGEST GROUP IN PARLIAMENT Following the European parliamentary elections in May, a pan-European, anti-EU transnational alliance will become the largest group in parliament. The new European Parliament chooses an anti-EU chairman and the European heads of state and government fail to pick a president of the European Commission, sending Europe back into political and economic turmoil. 3. TECH’S ‘FAT FIVE’ WAKE UP TO A NASTY HANGOVER IN 2014 While the US IT sector is trading at about 15% below the current S&P 500 valuation, a small group of technology stocks are trading at a huge premium of about 700% above market valuation. These ‘fat five’ (Amazon, Netflix, Twitter, Pandora Media and Yelp) present a new bubble within an old bubble, thanks to investors oversubscribing to rare growth scenarios in the aftermath of the financial crisis. 4. DESPERATE BOJ TO DELETE GOVERNMENT DEBT AFTER USDJPY GOES BELOW 80 In 2014, the global recovery runs out of gas, sending risk assets down and forcing investors back into the yen with USDJPY dropping below 80. In desperation, the Bank of Japan simply deletes all of its government debt securities, a simple but untested accounting trick, the outcome of which will see a nerve-racking journey into complete uncertainty and potentially a disaster with unknown side effects.

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5. US DEFLATION: COMING TO A TOWN NEAR YOU Although indicators may suggest that the US economy is stronger, the housing market remains fragile and wage growth remains non-existent. With Congress scheduled to perform Act II of its ‘how to disrupt the US economy’ charade in January, investment, employment and consumer confidence will once again suffer. This will push inflation down, not up, this year, and deflation will again top the Federal Open Market Committee’s (FOMC’s) agenda. 6. QUANTITATIVE EASING GOES ALL-IN ON MORTGAGES Quantitative easing in the US has pushed interest expenses down and sent risky assets to the moon, creating an artificial sense of improvement in the economy. Grave challenges remain, particularly for the housing market, which is effectively on life support. The FOMC will therefore go all-in on mortgages in 2014, transforming QE3 to a 100% mortgage bond purchase program and—far from tapering—will increase the scope of the program to more than US$100bn per month. 7. BRENT CRUDE DROPS TO US$80/BARREL AS PRODUCERS FAIL TO RESPOND The global market will become awash with oil, thanks to rising production from non-conventional methods and increased Saudi Arabian output. For the first time in years, hedge funds will build a major short position, helping to drive Brent crude oil down to US$80/barrel. 8. GERMANY IN RECESSION Germany’s sustained outperformance will end in 2014, disappointing consensus. Years of excess thrift in Germany have seen even the US turn on the Euro area’s largest economy, and a coordinated plan by other key economies to reduce the excessive trade surplus cannot be ruled out. Add to this falling energy prices in the US, which induce German companies to move production to the West; lower competitiveness due to rising real wages; potential demands from the SPD, the new coalition partner, to improve the well-being of the lower and middle classes in Germany; and an emerging China that will focus more on domestic consumption following its recent Third Plenum. 9. CAC 40 DROPS 40% ON FRENCH MALAISE Equities will hit a wall and tumble sharply on the realization that the only driver for the market is the greater fool theory. Meanwhile, the malaise in France only deepens under the mismanagement of the Hollande government. Housing prices, which never really corrected after the crisis, execute a swan dive, pummelling consumption and confidence. The CAC 40 Index falls by more than 40% from its 2013 highs by the end of the year as investors head for the exit. 10. ‘FRAGILE FIVE’ TO FALL 25% AGAINST THE US$ The expected tapering of quantitative easing in the US will lead to higher marginal costs of capital from rising interest rates. This will leave countries with expanding current account deficits exposed to a deteriorating risk appetite on the part of global investors, which could ultimately force a move lower in their currencies, especially against the US dollar. Five countries fit this category—Brazil, India, South Africa, Indonesia and Turkey.

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