Avoiding your own business disasters.
“Preparation is the key to all things — except spontaneity.”
– John Edgerly
Most people in Southern California remember where they were when the recent fires came. San Diegans remember seeing the smoke shroud their city and many saw the flames with their own eyes, as hundreds of homes within the city limits were lost. It was the great Firestorm of ’03, and for thousands of people in the (once) Golden State, it was a cataclysmic, life-changing event. For 22 others, it was an event that ended their lives. For all of us, it was an example of courage and bravery that was betrayed by poor planning and shortsighted preparation.
As business people, we are challenged every day to manage within a set of circumstances we cannot control. If we could control all aspects of our business lives, it would be perpetually easy, which it certainly is not. So preparation is a constant in our lives, and as the old saying goes, “Fortune favors the prepared.” What must we do to anticipate the business wildfires that threaten our economic futures, and how can we assure the necessary assets are available to fight them when they come?
In firefighting, as in military operations, assets are key. But being the United States of America, bureaucracy can and does rear its ugly head, getting in the way of deploying the assets needed to achieve an objective. Mortgage originators are no strangers to roadblocks raised by bureaucracies; virtually every lending regulation we deal with today began life as a bureaucratic knee-jerk to a perceived problem. Ideally, we would plan and prepare to deal with roadblocks in order to avoid disaster. In the case of California’s Firestorm of ’03, there were unfortunate bureaucratic snafus that proved costly for many families.
Southern California is a center for military activity matched by few others in the world. Part of that presence includes hundreds of aircraft, many of which are easily rigged for dropping water or chemicals on fires. When offered the immediate services of a number of fixed and rotary-wing aircraft, the California Department of Forestry declined the assistance, even as their own assets were being overwhelmed. All of their aircraft were distributed throughout the state, leaving virtually none to combat the fire that would become the largest in California’s history. So why in the world would they prohibit the use of military aircraft flown by world’s best aviators? In two words, bureaucratic procedure. Their procedure required that all pilots and aircraft must first be certified by the CDF before being allowed to serve in firefighting efforts – a rule clearly aimed at civilian pilots and general aviation aircraft. But these weren’t traffic ‘copters waiting for orders on the flightlines, these were Navy and Marine Corps fliers, trained to combat fires on their own bases. Nope, the bureaucracy said, as homes burned and people died, they don’t count until we qualify them.
In emergencies, you can only be so prepared; surprises and contingencies arise which turn predictable circumstances into emergencies. Still, as Ben Franklin said, “An ounce of prevention is worth a pound of cure.” Preparation can keep an emergency from becoming a disaster. Had someone made the discovery that military assets needed to be certified before being deployed to fight fires, Southern California’s disaster might have been lessened substantially.
The fires will come to our industry, and in fact have already begun. Coming off the largest mortgage market in history, those left unprepared will have few alternatives to evacuating the business and finding refuge in another line of work. The time to prepare began months ago, but the low rates have bought a certain amount of time for late planners. Where does your company fit into this all-important timeline, and what form should your preparations be taking?
Change your personal paradigm. Even in a business as fast moving as mortgage origination, people can get set in their ways. There were many types of loans originated prior to the refinance boom, and there will be many originated when it is a fond memory. Consider new ones, rather than continuing to hunt for refi customers. Become familiar with home equity credit lines, subprime firsts and seconds, and the old standbys, FHA and VA. The good news: there are plenty of wholesalers ready and willing to help you make the transition to entirely new loan offerings. The subprime world, for example, tends to be countercyclical in nature, fairly immune to market swings. Subprime lenders expect minimal impact from the end of the refinance boom, since their loan products meet borrower needs that can actually escalate in slowing markets. Another growing market segment is the “Alt A” world, which caters to borrowers who have good credit, but are non-conforming in different ways. Above all, be open to changes in your personal paradigms and resist the temptation to avoid change.
Maximize your database. When was the last time you made good use of the database of borrowers you have developed over the last three years? If it was merely to form a mailing list for refinance solicitations, it’s time to do something different. If you’ve been harvesting information about your borrowers and their individual situations, use the information to create a new approach, like predicting their changing loan needs. A child nearing college age often means a need for tuition money, and possibly an interest in a smaller home as the parents become empty-nested. Kids approaching driving age generally presage a need for additional cars in the driveway, a good time to be recommending an HEL. You have the information, and there are dozens of ways to use it to your and your borrower’s advantage.
Invest wisely. As volume decreases, the natural reaction is to ratchet spending down to a bare minimum. But as you do so, don’t neglect the necessary areas of training and marketing. When the fires come, your competitors will tend to cease any kind of investing in their future, which leaves them vulnerable to growing stale and becoming unknown. Invest wisely, but invest in the future of your company by making certain your field representatives are the most professional and educated ones out there. Look into seminars for your field people; they are generally very reasonable and can result in dozens of new ideas to inspire and motivate loan originators. Invest in getting the maximum visibility for your company at a time when others are letting their name recognition dwindle. Do not ignore your advertising and marketing efforts in the name of economy, but rather become more creative in the ways you allocate your resources. You will stand out more, because others are disappearing into the woodwork.
Be demanding of your wholesale sources. Who offers processes that can help you do more with less? Which among your lenders has innovative programs or has a record of being open to ideas coming in from their field originators? The best ideas seldom begin in the home office; the smarter lenders realize this, and therefore may be eager to explore new loan programs to meet emerging needs (McDonald’s greatest success, the Big Mac, was suggested from the field, not the home office). These are the lenders with which you probably want to become allied. Along the same lines, some of them may offer co-marketing programs for niche markets and specialized products; your wholesale reps may regard them as “unadvertised specials” that you won’t hear about until you ask.
Reexamine your business model. You may find doing business as usual is an unattractive response to the changing market, even after you’ve installed a new set of product offerings. Sometimes smaller is better, and sometimes it is not. So then is net branching right for you? It might make sense to explore the possibilities of joining a larger company with greater resources and capabilities, such as more sophisticated systems, marketing and processing assistance. Many net branch companies can make it possible for you to downsize your staffing requirements without sacrificing service quality – and even improve on your current capabilities while enabling you to save on payroll. Or perhaps you might look into obtaining a warehouse line to gain “lender status,” adding to your income potential. This option will make your life more complicated, as having a warehouse line brings with it an entirely new set of business requirements and procedures. But it also offers the potential to grow your business if you are in a market that is underserved or offers niche growth, one waiting for a specialized entrant. Examples include ethnic neighborhoods or other similar affinity situations where you can offer differentiated services and products.
When the fires come in the literal sense, most of us can only imagine the magnitude of fearful anticipation a family might experience as they abandon their home to the forces of nature. Or the stress of not knowing for days at a time whether their home survived. Or returning to a neighborhood and finding nothing but ash and the cinders of lost memories built over lifetimes.
During the great firestorm of 2003, the fortunate had time to prepare and load their cars with photo albums, important documents, irreplaceable keepsakes, and family treasures. Others, owing either to the speed at which the fires moved or to the lack of preparation for broadcasting evacuation warnings, had no time to gather heirlooms and critical items – and escaped with the clothes on their backs. Next time, it will be different, because of the lessons learned. Building codes will be modified as neighborhoods are resurrected, procedures among the bureaucracies will be reevaluated, and hopefully fewer families will lose everything.
In our business, the threats looming with the sweeping changes ahead will be met more effectively if lessons are learned about preparing for a catastrophe before it strikes. To do otherwise courts disaster and leaves your company’s future to a hostile fate, when the fires come.
By James Hennessy