Life and business are often defined by unpredictability; in the mortgage business we can add a strong dose of volatility and uncertainty. Yet, if there had ever been a perfect time to be in the mortgage business and execute a new idea, strategy, or plan, it would have been during the last several years when the mortgage business seemed golden.
Few would deny that over the last half-dozen years or so, the phenomenon of several glorious refinance waves has made the mortgage business pretty darn good. This was true for the originator or relationship manager, although less true for servicing portfolios and secondary marketing. Nevertheless, good profits were generally made all around. If something new was tried there was enough business activity to find the resources to make it work. There was also enough profitability to disguise or cover up poor execution if things didn’t work exactly as planned.
It may now be in the recesses of our memory, but it wasn’t that long ago that a $600 billion annual mortgage market was terrific. Today, even with rising rates, there have been no projections that reduce the overall mortgage market to a level lower than nearly three times these historical “good” volumes. So, while the last several years have been great, there is nothing to indicate that the next several years won’t also be filled with opportunity.
There is certainly more than one way to look at our current conditions. One view is that there was a perfect “window of opportunity” to grow our businesses, but that was before the market changed. Interest rates are rising; now must not be the time to take chances. That’s one view of the current environment, but I don’t buy it.
There is another view. I remember what a former boss told me in the distant past during the end of one of those periods of high refinance volumes. That year the company had the biggest origination volume in history, $50 billion, and I recall hearing the words, “any idiot could have done that.” While inspirational, I didn’t buy that point of view either.
Whether we are in the upside or downside of a business cycle, it takes definitive action to create momentous results. We must ask ourselves what it will take to move forward now. No matter which way the economic and interest rate winds blow, doing nothing doesn’t work. Whether the wind is to our back or in our face, we must learn to lean into it. Have a forward-leaning plan and execute it, especially when the going gets tough. In the mortgage business the winds can change quickly and blow in different directions. If we have wind at our back it can be a great advantage; it can accelerate results. If there is an economic headwind then we must lean into it harder.
There is enough evidence to suggest that in the current environment, which seems like a headwind, there are companies that will loose momentum. We can already see it. Success can be fleeting—miscalculations create opportunities for others. We must be prepared to take advantage of these circumstances, and we can if we are ready and poised to go after them.
What separates and differentiates companies in these down cycles is clarity of focus and action. These are the times when we must be sharper in every aspect of our business. Little things count more when the going gets tough. If we don’t recognize this subtly, then we squander resources and lessen our ability to take advantage of emerging opportunities.
Focus on expenses and processes that are wasting resources unnecessarily. It is inevitable that during up cycles we throw money at things to get them done. Why not? Time is of the essence and business is good. There is plenty of revenue coming in so spending a few extra bucks won’t hurt, right? Wrong. We get lulled by prior success and inevitably, as the market tightens, we are slow to change our habits.
Look at every expense and justify that it is the right thing to be doing. For example, look at such things as cell phone usage. I am amazed at the variation in cell plans and how much is wasted. The same applies to travel, entertainment, office supplies, courier, advertising, marketing expenses, and on and on. We waste a lot more than we realize. If there is extra space, sublet it. If leases are coming up for renewal, make an effort to work with your property manager to have your rent reduced.
Take a good look at processes too. Are there steps or procedures that are no longer necessary? Can functions be combined in a new way to provide better service to customers and originators? What are the metrics in the business? What are the trends in loans handled per processor and closer? How much revenue is there per employee? Is it time to reevaluate fees? We tend to add staff to get the job done during higher volume times, but don’t make the hard decisions to adjust staff size with the best people as volumes and circumstances change. When the shop is in order and expenses under control, we always feel a lot more comfortable about continuing to lean forward.
All of this is, of course, easier said than done. Most business people have trouble doing two somewhat opposite and different actions at the same time. They watch and control expenses but fail to focus sufficiently on growing the business and investing in key areas wisely. Doing both at the same time is critical. It can be hard, but we must keep focused on finding ways to expand what we are doing and also find new opportunities. They are always there, even more so when the market tightens.
When we think we have found those opportunities we must be clear in our expectations. So many times managers jump at opportunities without thinking through what it will take to make it work. Understanding what it takes and setting clear expectations up-front is the beginning. Monitoring progress and holding managers and the team accountable each month for what is expected is part of good results management.
When things don’t work, with the best of plans and people, don’t be afraid to either revamp the plan or start over. Even if it was the best idea you thought you ever had, let the numbers speak for themselves. It never pays to throw good money after bad. Redeploy your resources and human talents and energies toward another opportunity.
Don’t stop leaning forward.