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

ART in Mortgage Industy - by Cal Haupt

Have you ever seen an ART Class where all the participants paint a subject from the same perspective and look over at each other to see how others are doing? 

Over the weekend, I was
reminded how important organically adapting a company to the market yields a major advantage and return. 

ART is a diverse range of executive activities creating a tangible expression of the executive’s technical skill intended to be appreciated by the shareholders and community analyst. 

Being able to see the beauty in the Mortgage Industry and its opportunity is a unique skill needed to see a path to incremental success over varying market conditions.  Most in the Mortgage Industry listens to the same paid service view of the market and act upon that data.  As a result, everyone is following the same path and by definition, if you are all doing the same thing an average result is the certain outcome.

The client and secondary market is a zero-sum game.  The client will always get a market rate and the secondary market will hedge and arbitrage that rate to an acceptable return without impact to the client.  How a company functions and the perspective they have of this known universe is what quantifies the rewards.

When I meet someone who follows Southeast Mortgage they always want to quantify us by volume.  I always respond that we track Revenue which is your ability “ART” to convert volume to revenue.  Revenue to Net Income is easy with a grasp on GOGS and Operating Expense.  I have combined 14 companies into Southeast Mortgage over the years and the net margins I observed left a lot of opportunity on the table.  Southeast Mortgage shared a unique perspective with the owners that yielded a significantly greater return for them from the same volume.  Given any volume of production has a theoretical maximum rate of return most only capture ¼ of what is available because that is all they see is available on others canvases.  I call it wasting opportunity.

If I could offer one suggestion to those that participate in the Mortgage Industry, it would be to keep an open mind to a better path.  If you can accomplish your goal 3x faster, don’t discount the opportunity just because the other canvases have the same picture resulting from pack mediocrity and shared expectation.  Traveling the same path always yields the same result.  Take a new educated perspective and create beautiful ART.

Cal Haupt
Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.
770-279-0222
www.southeastmortgage.com

You Owe It To Yourself...

www.southeastmortgage.com
770-279-0222

(Transcript) Does anyone in the Georgia Mortgage Industry Retire?

Does anyone in the Georgia Mortgage Industry Retire?

I have been active in the Georgia Mortgage Industry since 1993 and responsible for the acquisition and combination of 14 mortgage companies in Georgia.   I have seen a lot during my due diligence and research.  To me it seems nobody retires in the mortgage industry?  I have seen a few companies sell at market tops that benefit one or two people, but most of what I see are sales professionals that cycle around from company to company with no plan for their own exit strategy or retirement.  One trend that REALLY baffles me is why people follow a sales leader that has a record of failure due to poor judgement and or strategy.  You can always stay friends with sales leaders that cant get it right, but your career is your business and has a finite life.  You have to align with a company that will help you achieve your long term goals and retirement.  

This is a great wealth building industry and people who devote their lives to working in it should have the opportunity to retire comfortably at a reasonable age as a reward for their dedication and work serving clients.  

Market tops are opportunities for mortgage companies to expand through acquisition.  Growth is much easier and more efficient when they can buy a mortgage lender that has a great reputation and a secure market share. Unfortunately for the masses in the Georgia mortgage industry, most companies are organized as LLCs.  An LLC has an Operating Agreement that defines who gets paid.  There is no equity like a Southeast Mortgage and the sale is an asset sale not the purchase of employee or owner shares.  The rank and file employees do not benefit in an asset sale, and to date, I have not seen an LLC member cut a big check or any check for that matter to those employees that got them paid.  Why they don't or did not is beyond me and not right.  Employees and the team that create the value should share in the monetization of that value when sold.

Limited liability company (LLC) An LLCs has a number of disadvantages, especially in relation to the structure of a corporation. An LLC has to be dissolved upon the death or bankruptcy of a member, unlike a corporation, which can exist in perpetuity. Also, a LLC may not be a suitable option when the objective of the founder is to eventually become a publicly listed company. An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs do not need to be organized for profit.
^{http://www.investopedia.com/terms/l/llc.asp}

I truly believe if people would listen to their logic and believe in themselves, they would be in a position to get their fair share of what this great industry has to offer.  

Are you loyal to a company or a person that continues to move or benefits from changing companies.  Did they share the big upfront draws with you that your originations will pay for?  Are you expecting that behavior to change?  Hoping it will is not a plan for success.  A zebra does not change its stripes.

Most owners who who evolved from being great sales people never obtain the skills to manage the growth of a company which is the foundation of your career.  Sustainable growth rates, the dangers of stripping a balance sheet, cash flow, and organization structure design are foreign to most leaders and owners.  The majority of the owners that tend to be flashy and make deals that are not equitable or not financially viable in the hope they can buy business rather than earn it from service.  They also tend to be unsophisticated with respect to financial analysis and believe origination volume is profit?  I cannot tell you show many of them ask me "what is your volume". My response is always revenue pays the bills not origination volume.  Source and mix are critical post 2009.  Understanding why - is the key to converting volume to revenue.  The other disturbing trend is they tend to buy business rather than focus on service delivery and their employees’ futures. 

With respect to loan originators, I see two types at the various organizations I have frequented over the years.  The first is the employee who is loyal to an owner who either sold without sharing the gain or loyal to a sales leader that moves from one company to the next, to the next – either for a flashy, new out-of-state name or promises that have no merit or substance.

The second type of loan originator basically moves to a point of least resistance to avoid licensing which requires them to work for a significantly lower commission structure.  If it were me, I would license myself since it is my profession and adapt to a best in class methodology that earns me 3 times more.  We all have to follow the same rules and the golden key goes to those who adapt and execute the best under those rules.  Those that choose to bend the rules eventually fall into the failed company "poor judgement" example above.  Strangely enough loan originators tend to follow the same leaders that make the repetitive judgement errors rather than seeking a company that has a proven track record and shares equity with its employees.  At the end of the day (or the end of a career), you have to pay your own bills and you should put you and your family first.

Everyone should view their career like an investment.  You deserve a return on your career investment.

Ask yourself?

Is your career in the hands of someone that has a proven track record of success?

Is my company in my market for the long term or are they here for the low hanging fruit and then back to CA, VA, NJ, etc?

Does my company have a generous 401K match?

Does my company share ownership with its employees?

Would my company help me if I were sick and cut a check to help me through a tough time?  Loyalty is a two way street.

I would honestly like to see more people retire comfortably from our industry rather than seeing the same aging faces punching 8 to pay their bills.

As the Chairman and CEO of Southeast Mortgage of Georgia, Inc. (Georgia Corporation since 1993) I know how hard my team works to support their families and me and my Executive Leadership take our fiduciary responsibility seriously to ensure we reciprocate loyalty and trust.  Since 1993 we have added 37 employees to our shareholder list and will add 10 top performing Loan Originators to our shareholder list each year going forward.   

To my knowledge Southeast Mortgage is the only non-bank mortgage company to have retirees that enjoy a substantial monthly income while continuing to own part of our great company they earned during their years of service and contribution to our success.

Cal Haupt
Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.
770-279-0222
www.southeastmortgage.com

Does anyone retire in the Georgia Mortgage Industry?

Cal Haupt

Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.

www.southeastmortgage.com

770-279-0222

 

Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. In the event of liquidation, common shareholders have rights to a company's assets
http://www.investopedia.com/terms/c/commonstock.asp
  

Limited liability company (LLC) An LLCs has a number of disadvantages, especially in relation to the structure of a corporation. An LLC has to be dissolved upon the death or bankruptcy of a member, unlike a corporation, which can exist in perpetuity. Also, a LLC may not be a suitable option when the objective of the founder is to eventually become a publicly listed company. An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs do not need to be organized for profit.
^{http://www.investopedia.com/terms/l/llc.asp}

Economic Recovery Top - Low Country View by: Cal Haupt

I wrote an OP ED back in December 2011 about the relativity of a recession and the best course of action based on my data supported by 3 recessions.  Now the recovery top view.  http://southeastmortgage.blogspot.com/2011/12/low-country-view-of-recessions-from.html  

As we move into the 8th year of the recovery, a DOW 20116, Commercial Flights Full, Malls Full, Restaurants Full, New Car Dealer Lots Over Flowing, and everyone on your street doing home renovations, everyone should govern their actions by data vs. the euphoric feel of a recovery.

With respect to the Mortgage and Real Estate Industry, I am still confident we are in the 15th month of a 60 – 72 month cycle expansion.  I am confident to the tune of investing millions in a 30,000 sq. ft. operations and life balance center at 3575 Koger Blvd in Duluth.  The growth for the past 15 months is ahead of my projections which provides a large enough sample to proof that my hypothesis is correct.

Now for the Yang to the Real Estate cycle Yin.  The financial markets, various stock markets and other financial derivative instruments, can falter without an impact on the Real Estate Market.  Why?  The primary participants or the 80% of the underlying trades in the above markets are institutions and traders.  When it corrects and it will, the retail consumer in general will not be hit the way they were in the last financial crisis because they are not in the markets as deep as they were in 2008-2009.  As a result, they will be unaltered in their euphoric quest for Real Estate.  Whether their need is trading up, trading down, or new home creation for families this trend has 4-5 years left before a plateau. 

My low country view is we all have to navigate the same rivers in a low tide (2011) that we navigate at high tide (today).  Anyone who has been at the helm of a boat knows rivers can be a mundane transit or a harrowing experience depending on tide and weather.  No matter the size of your boat, the outcome is the same.

 This is relevant in that although there looks like more water and routes to take at high tide, beware that the tide cycle and that route outside the normal river may be mud at a lower tide.   The only constant is the Captain (leadership) must know the tidal pattern and govern voyages based on that data.  Financial Markets are no different.  You just need the tide table. 

Most of the Mortgage Lenders that went out of business in 2008-2009 were all navigating in areas that were not part of the average safe tide and were not paying attention to the data that determines our financial tide table.

My advice to MLOs and other professionals related to the Mortgage Industry is although low score, high LTV, and limited documentation products fit a specific need for a very narrow segment of clients; be careful when a Mortgage Company leads with these unique products.  If they do, be prepared for a change in career. 

The safe river is clearly defined by the regulations and directives of our elected officials.  Fannie, Freddie, FHA, and VA products.  Yes, FHA has some low score parameters and should be ingested carefully given Neighborhood Watch reflects gluttons and common sizes them given low scores correlate to higher default and delinquency.  Prudence dictates moderation and sell to client need which is always a fiduciary's safe path for industry participants and clients at all tides.

 

Cal Haupt

Chairman and Chief Executive Officer

Southeast Mortgage of Georgia, Inc.

www.southeastmortgage.com

770-279-0222

Growth and Success is contagious at Southeast Mortgage

2016 Was Another Year of Opportunity for Our Talented and Loyal Family of Professionals.  Growth and Success is contagious at Southeast Mortgage.


ü51 New Employees Hired through November 2016

ü6 Internal Promotions

ü4 Officer Promotions

ü5 Vice President Promotions

ü2 Assistant Vice President Promotions

ü9 NEW Operations Shareholders

ü10 NEW MLO Shareholders

If you are a successful mortgage professional looking for a reciprocating relationship with your employer, Southeast Mortgage shares its success with the TEAM who creates it.
www.southeastmortgage.com
770-279-0222

“BREAKTHROUGH” Stock Issuance Program - Southeast Mortgage

Top 10  Southeast Mortgage Originators are issued Common Stock “BREAKTHROUGH” Incentive Program

“Our MLO’s and Operations Specialists are key members of our Team and create equity for shareholders.  As a result, Southeast Mortgage of Georgia, Inc., SEM, believes in sharing the wealth created with its employees.  Today, our 34 shareholders are originators and operations specialists.”  Cal Haupt, Chairman and CEO

In a surprise announcement at the Annual Christmas Party at the Ritz Carlton Atlanta on 12/14/2016, Southeast Mortgage of Georgia, Inc. announced their top 10 originators and issued each of them a common stock* grant valued on 12/7/2016 at $149,780.  In addition, 9 Operations employees were issued stock for exceptional execution of SEM's Service Goals.

Each year going forward, the top originators and operations specialists at SEM will be awarded shares (ownership) in Southeast Mortgage.

“SEM is now owned by 34 shareholders and shares ownership with employees that facilitate the growth of our company.  Unlike the many Mortgage Company LLCs with a few partners, SEM, a Georgia Corporation, has always had a core belief that everyone who contributes significant value to the company should share in the wealth it creates.  This is a unique opportunity for the best of the best MLOs and Operations Professionals to share in the equity they help create.  To my knowledge, this is a first in our industry and the right thing to do!” Cal Haupt, Chairman and CEO

 

www.southeastmortgage.com

770-279-0222

* subject to certain conditions

Organic Growth Requires an Awesome Client Experience - It is what we do!

770-279-0222

Last Pictures of the NEW SEM Operations and Life Balance center before CO tomorrow

Entry and Stairs to 3rd Floor / Employee Social Area and Workout Center

View from Operations Area North looking South

This is the last photo set before the Certificate of Occupancy Friday.  Delivery of design components, furniture, and all the cool stuff starts Monday for an 8-31-2016 completion.

No furniture moves from the current operations center at Club Drive.  This is a NEW operations and employee life balance center from A-Z.

Be sure to join us for one of our opening events.  Come to the Media opening, CE Class, or Sales Seminar to tour the Awesome Features that will be unveiled and the coolest work space in Georgia.

Cal Haupt
Chairman and CEO
Southeast Mortgage of Georgia, Inc.
Serving our client's trust since 1993


Elevator Entry

Cross Walk East to West side



Exec / Support view North to Elevators and Stairs



Lights and cool stuff not installed yet - Media Studio (Video and SEM News)



Conference Room #1 - Conf Table is a one of a kind production



Operations looking South on West side



Stairs to Employee Social Area and entry to Workout Room

Workout Room - This will have better equipment than you will find in your favorite gym

UPDATE - New Southeast Mortgage Headquarters and Life Balance Building

Our new Headquarters and Life Balance facility is on track to be completed at the end of the August.

Don't miss our grand opening events and CE classes being hosted at our new building.  There is no Office space like this one. 

East Side 4th floor ready for carpet.  Work stations are en route

We will have a Studio for Video shoots and other media necessary to support our partners.  The glass corner is the studio.

3,000 pound fish tank is on its way, Workout Center, Employee Social Area, Game Center, and Cooking area is downstairs.  This general area will be the Client Relationship Management's domain welcoming our guests and clients.

This is the West Side of the 4th Floor.  Exec, Admin, Accounting, and Legal will be located with the center area ready for the Social Max furnishings.  This area will be very cool...

Www.southeastmortgage.com 

770-279-0222

Breaking the Paradigm and making Awesome Service Tangible...

Congratulations to our Operations and Support Teams for achieving a 4.71 and 4.69 group service score in the 1st and 2nd Quarter 2016 respectively.  Our service score is the average MLO rating of their operations experience for each of their closings and our client's survey of their experience with their MLO and Operations team on a scale of 1 being poor and 5 being perfect.  We call it 360 degree accountability.

Our Operations and Support Teams equally shared in a bonus of $78,252 for the 1st Quarter 2016 and $83,161 for the 2nd Quarter 2016.

AWESOME SERVICE is delivered by an awesome team.  With surging volumes and an almost perfect service score speaks to our teams ability to scale rapidly with the same great closings and speed.

Construction is underway at Southeast Mortgage's New Headquarters / Operation Center....

We have incorporated all the input from everyone last week and have communicated the changes to the architect and general contractor.  We have a very cool and functional work / life balance facility design.  I think every one's first impression will be WOW because there will be no other Mortgage Headquarters / Operations Center that will rival this one.  Awesome is what our team deserves and Awesome is what you will have.....


This is 4th Floor looking back from the middle of the floor.  This SPACE is HUGE!

Cal Haupt
Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.
www.southeastmortgage.com

SEM TEAM begins comment period of Floor Plan's for their Awesome New Headquarters and Operations Center

The Southeast Mortgage TEAM is now commenting on the new Headquarters / Operations Center / Work Balance Floor Plans to ensure we have all the amenities and functionality in our 31,000 square foot facility.  Every opinion matters and we have already added some cool amenities not thought of.

The Video / Photo Studio has been increased and modified to shoot video for our partners on site and the massive fish tank's location has now been determined to relocate our swimming tenants. 

The fitness room is slated for a host of UHDTVs,  2 Octane Machines, 2 water rowers, 2 LeMonds Incline Bikes, 2 Tread Mills, YOGA,  and Weight stations.

Other amenities will be relaxation pods, bocce ball / putting green, ping pong, pool, and other competitive team building games.

The entry will be something never seen in at Mortgage Company.

Amazing space for an Amazing TEAM to provide Amazing Service to our Amazing Clients and Referral Partners.

Cal Haupt

Pay attention to the Tide.

 Over the past six months or so, I have been seeing the equation getting out of balance or not making sense.  2 + 2 has to = 4 or at some point other factors will.  As you can see from the chart below, we are extended past the last re balance.  Normally the equation or cycle adjusts every 7 years.  The jobs data is only one factor to look at. 


Change in Payroll Jobs Jan 08 - Jan 17

Another very important factor is what is supporting the stimulus?

In the beginning of the recovery (see the chart below), you can see it was supported by liquidity in the credit markets which trailed off and or was dwarfed by long term treasury purchases.  The purchases are government and safety related.

The positive and or negative aspect of this scenario is that the economy will experience another economic pullback, the flight to safety (real estate) will be a cornerstone of low risk tolerant families and a generation of non-stock investing Millennials.  We are already surging in volume from this prediction and preparation last year when we initially saw it.

Due to the changes in the mortgage industry's regulation and the lack of funding for non sustainable product, there is no need for a rebalance in our industry and I do not anticipate one.  Some are advertising and adding unsustainable product to boost revenue.  This reduces the draft they need to navigate the coming tide.  Southeast Mortgage, SEM, always plans to run well in any tide with sustainable product, great service, and a diverse source and mix.  I am so confident, we are investing in another 31,000 square feet of Operational and Employee Work / Life balance space that comes online in September 2016.

As with past cycles, a great plan and learning from the past is critical to prospering during an economic down turn.  Leadership and Companies tend to have a safe geographic area that they live in and work in.  They may expand out during HAPPY times, but they always pull back to their home states when the economy turns.  SEM lives and works in Georgia and thus we have been open for business since 1993 with the same leadership and corporate structure.  We can drive to AL, FL, and SC thus we remain balanced and service our markets in any tide.

Luck favors a great plan and execution.  Even though you have to be in the right place at the right time to derive more than the average, you have to plan for what if.  A strong balance sheet with cash to fund without warehouse banks becomes relevant.  Organizations that expand past their home foot print must fund the additional cost via their balance sheet or debt from other sources.  When the economy turns, the dominos fall from highest debt to lowest debt which in our industry generally correlates to experience and how stretched the span of control is.

Nobody knows the timing, we just read the tide and plan accordingly.  MLOs and Mortgage companies can do very well in downturns; however, boats that run at high tide despite their weight generally hit the bottom before more nimble boats as the tide gets too low.  Its best to have a wide "diverse" boat that runs great at high tide and low.  We can only control the boats weight (debt), strategic plan (sustainable product), and engine (Great Service Oriented Operations TEAM).  You cannot control the tide.  You can only control what boat you step on.  Now is the time for Mortgage Professionals, MLO's, MLO Assistants to put themselves in a position to maximize this recovery over the next few years and know the foundation they build will support them during an economic contraction.  The next recession will be the fourth that SEM navigated.  When you step on a plane do you feel better knowing you have a 30 year veteran at the stick flying the same dependable plane.

Depending on your boat the fishing will be great for the foreseeable future.

Cal Haupt
Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.
www.southeastmortgage.com

Southeast Mortgage of Georgia, Inc. to Open a New 31,000 sq ft MAX Operations Center in Georgia

I am pleased to announce, Southeast Mortgage's new Corporate and Operations Center in Metro-Atlanta, Georgia. 

We will begin the build out and preparation of our new 31,000 square foot facility immediately.  We expect to occupy September 1, 2016.

The Expanded & Re-Designed Corporate / Operations Center will host all of Gwinnett Operations, Client Relationship Management, Executives, Fitness Center and other Wellness and Life Balance amenities.

This site is located at Pleasant Hill Road and I-85.  The space will provide the platform for our continued rapid growth and will reflect our industry leading innovations in the delivery of Awesome service to our Clients and Realtor / Builder partners.

 Although I have mixed emotions about leaving the memories and comfort of Club Drive, the foundation that created Georgia’s #1 Georgia Based Non-Bank Lender since 1993, it is time to turn the page and triple our capability and capacity.  Our success and innovation, now requires a new facility that facilitates our growth and will enhance our TEAMs balance with work, family, and health. 

I will post a floor plan at Club Drive on the 2^nd floor for each department to review and make notes.  The floor plan will only be for the 4th floor in that the 3rd floor will be dedicated to life balance initiatives.  This is our space and I want everyone's opinion to ensure our space design fits all our points of view and preferences.

 

Cal Haupt

Chairman and Chief Executive Officer
Southeast Mortgage of Georgia, Inc.
Serving our Client’s Trust since 1993
www.southeastmortgage.com
770-279-0222