Seize the day!

2023 - Be sure you have your bathing suit!

Recessions are a cleansing process. Although painful they rebalance business, clarify unsustainable thought processes, and reveals the integrity of your team’s belief in your mission. How you manage this period can set you up for the next chapter in your career.

Recessions aka Economic Downturns, are triggered by various actions. The action that triggers the downturn determines the harder hit industries. The impact spares no company, how you embrace the cycle will determine if you emerge the new leader or another name in the history books.

This process, as Warren Buffet puts it “low tide exposes those not wearing a swimsuit”: happens every 7 – 10 years. Today, we see who is wearing a swimsuit in the mortgage industry. The huge losses mortgage companies and banks are taking on their unbalanced business model is exposing unsustainable sales practices or flaws in modeling.

Nobody can swim in the mud or low tide. December 11, 2011 “Low Country View of Recessions”: Low Country View of Recessions . Sometimes it is best to follow history and focus on improving strategy and our align with those that weather the storm the best.

Understanding this historical reoccurrence is important if you want to emerge as the next market leader and avoid being another LLC failure in the history of the mortgage industry.

Cal Haupt

Chairman and Chief Executive Officer

Southeast Mortgage of Georgia, Inc.

www.southeastmortgage.com Phone: 770-279-0222

Eye Sight vs. Hindsight - Plan for a strong finish.

The mortgage industry is in the most challenging market of our lifetime. No matter what the industry does to you, or your company does, your worth remains intact. It’s up to you how you monetize it. Put yourself first and find a team that lets you participate in ownership. Be a shareholder!

If your CEO who represents the shareholders, or your LLC Owner who represents himself or herself, do not focus on the data balancing the equation, losses will mount crumbling the foundation of your path.

Prior to July 2022, I monitored accounting daily with no eyeglasses. Today, I need glasses to see the same screens due to the intensity and frequency needed to adapt and remain profitable for the last 11 months. Southeast Mortgage’s 62 Shareholders (1/2 Mortgage Originators 1/2 Operations Professionals), expect their fiduciary to steer carefully in storms. Huge value awaits those left to fill the voids of this cycle.

Do you know if your company is profitable? If it is not, put your career first and make your own choice to find a profitable company. When companies close, don’t let others make your choice.

One distress sale after another lately, employees post “happy to announce I have a new position with the company that bought what was left of their prior company.”

Put yourself in a position to prosper when the market turns north. Good deals are hard to find when a resume reflects poor choices.

Good profitable companies need competent good Mortgage Originators and Operations Professionals.
Since 1993, Same Name and Expanding Ownership.

www.southeastmortgage.com Phone: 770-279-0222

Time is your most valuable commodity. Use it efficiently.

2017 Gulfstream 280 - N536CH

www.southeastmortgage.com Phone: 770-279-0222

Theory of eye sight and hind sight:

The mortgage industry is in the most challenging market of our lifetime. No matter what the industry does to you, or your company does, your worth remains intact. It’s up to you how you monetize it. Put yourself first and find a team that lets you participate in ownership. Be a shareholder!

 

If your CEO who represents the shareholders, or your LLC Owner who represents himself or herself, do not focus on the data balancing the equation, losses will mount crumbling the foundation of your path.

 

Prior to July 2022, I monitored accounting daily with no eyeglasses. Today, I need glasses to see the same screens due to the intensity and frequency needed to adapt and remain profitable for the last 11 months. My 62 Shareholders (1/2 Mortgage Originators 1/2 Operations Professionals), expect their fiduciary to steer carefully in storms. Huge value awaits those left to fill the voids.

 

Do you know if your company is profitable? If it is not, put your career first and make your own choice to find a profitable company. When companies close, don’t let others make your choice. One distress sale after another, employees post “happy to announce I have a new position with the company that bought what was left of my prior company.”

Put yourself in a position to prosper when the market turns north. Good deals are hard to find when a resume reflects poor choices.

Good profitable companies need competent good Mortgage Originators and Operations Professionals.

www.southeastmortgage.com Phone: 770-279-0222

2008 - Sub-Prime was unsustainable, 2023 - Bond Duration bets are unsustainable. Similar Outcomes

The mortgage industry is currently undergoing a significant transformation due to the rapid increase in the Fed Funds Rate since mid-2022, coupled with the industry's lack of compliance with prudent profitability objectives. 

All mortgage companies must comply with GAAP accounting and meet financial covenants to remain listed on stock exchanges, retain funding from banks, and maintain approval with Fannie, Freddie, and HUD "The GSEs."

When mortgage companies incur losses due to below market pricing believing it creates volume or they react slowly to align expense with margins, the equity on the balance sheet pays for the loss and misjudgment. 

The result?  Banks cease funding agreements and GSEs revoke approval status to sell mortgages once the tangible equity and financial covenants are not met.

Eventually, the balance sheet equity (shareholder's equity or LLC owner's cash reserves) will reach zero and the business closes or must sell its assets to a competitor for pennies on the dollar.

Housing Wire and other mortgage news outlets have been reporting these realities recently.

This shift is similar to the transformation that occurred in 2008-2009, albeit for different reasons.

Remember, prior to today the last highest Fed Funds rate was in 2007. We all know what happened after that. Poor business decisions were exposed as volumes fell 34%. Today you have a higher Fed Funds rate and volume has fallen 50% industry wide. Both were fueled by assuming risk using unsustainable assumptions in an effort to keep their volumes up. 

The upheaval has begun and has already forced many companies to close their doors, and one large mortgage originator is projected to lose $2 billion dollars in 2023, with only $500 million of their common equity remaining. Accounting matters no matter what size company they all will be held accountable.

Every company in the mortgage industry is unique, with different costs, margins, and opportunities. A one-size-fits-all pricing strategy "Follow the Joneses Strategy" is unsustainable, especially when it is based on bad or incompetent assumptions. Companies should balance pricing with the costs associated with their individual business to avoid another calamity like the one in 2008-2009. Does a Can of Coke cost the same at the Baseball Game as it does at a Convenient Store or Costco? No! they all have different cost structures and levels of service. While it may be too late for some lenders, it is never too late to take a prudent path.

“What gives you opportunities is other people doing dumb things.” Warren Buffett

Easy Read Summary:

The mortgage industry is changing because interest rates have increased too fast and many companies are not making enough profit due to one size fits all pricing. All mortgage companies need to follow financial rules and keep their finances in order to stay in the mortgage business. If a company loses money because they priced their loans too low or didn't manage their expenses well, they have to pay for it by using the money shareholders and LLC Owners saved up. This can lead to problems remaining approved by banks and government agencies that help mortgage companies provide mortgages to consumers. The result, companies have to sell their assets or close down.

This is similar what happened in 2008-2009 except mortgage volume is down 50% in 2023 versus 34% in 2008, when companies made risky assumptions and caused problems for themselves and the economy. It's important for mortgage companies to price their loans based on their own costs and profits to avoid making the same mistakes. Some companies have already gone out of business and others are too far down the road to be saved. Those that are left have to decide if they will choose to make better decisions.

Cal Haupt

Chairman and Chief Executive Officer

www.southeastmortgage.com Phone: 770-279-0222

The Most important thing you will do!

Career Challenge: How to know if your company is a fiduciary for both your career and your family?

Here's a simple way to find out: call the person at the very top of your organization - whether it's the CEO, LLC Managing Partner, Bank Holding Company Chairman, or someone else in that high-ranking position. Not a sales manager or someone lower in the hierarchy, but the person whose name is in the news as the head of your company.

Call their mobile phone and ask for a $2,000 personal loan that you'll pay back in 12 months.

Outcome 1: If they answer your call and give you the loan, congratulations! You can rest assured that you're in good hands with a company that values its employees.

Outcome 2: If you can't find their cell number, they don't pick up, or they brush you off with excuses, it's time to find a company that truly values you and your career.

Just like our clients and partners, we all need a fiduciary - someone who will look out for our best interests and have our back, even during tough economic times.

If you need more than an employer, call me.

www.southeastmortgage.com
Cal Haupt, Chairman and Chief Executive Officer
Mobile: 404-886-7016