Ep 024: How to Drive a Profitable 2022 in Today’s Challenging Market (w/ Anthony Ianni, Solutions Director at Maxwell)

Alan Parris:

Well today’s episode, I’m pretty excited. We have another Maxwellian joining us. We have Anthony, Ianni joining us who joined Maxwell, what was it, Anthony? Maybe five months ago. Six months.

Anthony Ianni:

Five months ago. Yeah. October.

Alan Parris:

Seems, seems like you’ve been here forever, but on a calendar, a relatively short period of time. Um, but welcome, excited for you to be joining Clear to Close with Brian and myself, um, and, uh, excited to have you on for what we think hopefully is a very relevant and important topic for many lenders. But do you wanna jump into your background for a bit? What you’ve spent time in and what brought you to Maxwell.

Anthony Ianni:

I appreciate it guys. Thanks for, thanks for letting me in the door here. So my, my past five months have been a blast and, uh, and so every day always learning something good, but as Alan said, I’m Anthony Ianni. Most people, if you know me, you probably know me as AI, so feel free. And, uh, I actually started off in the business in, was it ’87 or ’88 when rates were through the roofs and we were putting together like Freddie Mac and Fannie Mae pass throughs of 10 and a half to 11%. So I worked quite a bit in secondary marketing, which is now capital markets. I did, uh, quite a bit of correspondence sales and so I’ve worked in a variety of functions in the business and I’m here at Maxwell and I’m having fun at Maxwell.

Alan Parris:

Well, we’re happy to have you. And I think it’ll be a face for, for listeners—I think AI will be joining us more frequently throughout our, throughout our episodes. And we’ll have to figure out, you know, we need to make sure we don’t do an episode on artificial intelligence and AI when you’re joining or else no one will know what we’re talking about, but for today, I don’t think that topic is gonna come up so we can just refer to you a hundred percent as AI.

Bryan Traeger:

Well, I’m still holding out that we can get Allen Iverson ’cause he is my first favorite professional athlete. I had a reversible AI jersey. Number three was my favorite number. I’m not necessarily let down right now, but AI…

Anthony Ianni:

Oh my god.

Alan Parris:

So Bryan, so Bryan, this is, this is actually a quick, nice little tangent that we’re gonna go on. When you think of the number three in sports, you think of AI and not Dale Earnhardt.

Anthony Ianni:

See, I would say Dale Earnhardt, right? Yeah.

Alan Parris:

I mean, I grew up, I grew up in Georgia, like three is Dale Earnhardt and nothing else.

Bryan Traeger:

I thought we were talking about sports.

Anthony Ianni:

Oh, here we go. Look, dad took me to Dover Downs, KA Yarborough, Dale Earnhardt, King Richard…

Bryan Traeger:

What language are you guys speaking?

Alan Parris:

AI and I grew up in much similar lives than, than what, wherever you, uh, whatever childhood you had Bryan…

Anthony Ianni:

But wait a minute, in my defense, I’m way older and way shorter than Allen Iverson. And Ms. Steele, my second grade teacher, gave me that name—AI.

Bryan Traeger:

Love it, love it. Here we go.

Alan Parris:

AI, I mean this in, in all respect, but I think you were a little bit ahead of when Al Iverson was born.

Anthony Ianni:

A lot ahead.

Alan Parris:

Well, uh, so let’s go ahead and get, get jumping in this thing. So, you know the topic of what we wanted to cover today and, uh, you know, AI, this is why we thought you’d be a great guest for the show—there are a lot of things going on in the industry. There’s a bit of reshuffling, and turmoil’s probably the wrong word, but just a lot of things moving and changing, coming off of 2020 and 2021’s insane volumes. Um, and so would love to have a discussion around what lenders can be focusing on to make they hit their numbers and performance, both for the rest of 2022, but also just the long term future success of their business. So, um, to set up maybe a bit of context, you know, we were on a, uh—Sadie Gurley, who I know you work really closely with, AI, was on an economic panel with HousingWire, um, that we helped put together with them.

Alan Parris:

And the MBA’s, you know, 2022 forecast has been a little bit more finalized now. Um, you know, overall total originations are expected to go down 33%. This is a hundred percent driven because of refi all changing from 2021. So, you know, refi is down 62%, with purchase volume up seven and half percent. Um, and so the, the refi volume’s gone, there’s a lot of shift to almost this heavy, heavy purchase market. Um, and you know, the home buying world is still out there and starting maybe a little bit earlier this year than previous years, but just a lot of shifts in that amount of volume, getting withdrawn from the industry compared to the past couple years.

Anthony Ianni:

Yeah. I mean, there’s, there’s been a, you know, a ton of things that happened. And I would think, I would argue that volume is probably down even greater than the number that you threw out a couple of seconds ago. I mean, just in talking to, you know, folks that are hedging their pipeline today, talking to the larger aggregators and even talking to the warehouse providers, what you’re hearing is not alarm, but you’re hearing, “Hey, I’m definitely seeing some numbers that are much lower than we would’ve this early in the year and this early in this kind of like down cycle.” So, you’re right. I mean, we’ve got, we have a number of issues to address. We have affordability issues we have to continue to address. We have to, you know, home builders. I mean, here in Colorado, for example, there’s only so much, so much land that you have to build on by virtue of the mountains. So where do you as folks continue to come in? Where do we put them? We just had the fires in Boulder county. So now we’ve got, we have additional constraints on supply of homes as those poor folks that suffered quite a bit at the end of the year now have to find new shelter. So there’s a lot of things that we have to think about here.

Alan Parris:

Yeah. And when I know you spend the majority of your time on the secondary market and what’s happening with rates and stuff, I know it’s been going a bit different, almost every single day it seems, but what are you seeing and hearing there?

Anthony Ianni:

Well, my sense is, and, you know, today is an interesting day too, because we had, you know, overnight, we had news of the invasion in Ukraine. And that certainly has caused rates to dip here as, as investors, you know, investors in this type of turmoil traditionally will shed anything that has a ton of risk i.e. equities, and start to go into what we call “haven assets.” So haven assets being U.S. treasuries, U.S. mortgage securities, um, gold, uh, you know, certainly oil is up quite a bit, but those types of investments that are backed by the full faith and credit of the U.S. government gives people a little bit of comfort in times of turmoil. So, as we were kind of cruising along here, you know—I don’t wanna say cruising, but in kind of like the volatility that we’ve experienced since the beginning of the year, you know, we’ve had to deal with rates going from 3% up to four plus percent.

Anthony Ianni:

We have inflation at 7%. That’s concerning, you know, you have one Fed governor in St. Louis saying we need to raise rates by a hundred basis points tomorrow. And then you’ve got four other Fed heads, as I so lovingly call those guys. you’ve got those guys saying, “Well, no, maybe we should show restraint,” which is, you know, I mean, I’ll go out on a limb and give you an opinion. I think the Fed needs to come in, but now with the invasion today, if this is prolonged, now they have a bigger problem. So how do they address that? There’s not a lot the Fed can do right now to stop inflation if we have this continued problem in Europe. So how all this shakes out over the next coming days and coming weeks is, uh, it’s gonna be impactful, I think.

Alan Parris:

Yeah. And I know a lot of what we, uh, obviously, when we prepared this episode, we were not, uh—I mean, it was in the news and could happen at any moment, but we did not know that Russia was gonna invade Ukraine. So we’ll preface all this by saying, you know, what we think we put together for the most part is very evergreen and and can be impactful in this situation, regardless of what’s happening in that sphere. But obviously take that with a grain of salt as things can change at any moment.

Anthony Ianni:

Yeah, they certainly could. So it’ll be interesting because I think there were some things today alone—there were like five or six Fed presidents and governors speaking. So I haven’t had a chance to kind of sift through all this stuff because the news is coming in really fast. And then you have to kind of look at things with a, you know, is this real? Is this Memorex for those of you guys that used to use cassette tapes back in the 1970s? So, um, you have to kind of think what is real and what’s not real out there. So I’ll start to formulate an opinion here as we kind of go through.

Alan Parris:

Yep. And Bryan, I know you spend the majority of your day talking with our lenders, as well as you know, previously worked for a midsize to large lender prior to joining Maxwell. What’s this, all these moving pieces out there, what is actually changing in the day to day and what challenges are they seeing?

Bryan Traeger:

Yeah. Uh, well, there’s definitely a few, but first and foremost, I’m having a little challenge right now. ‘Cause AI just talked about “haven” and for some reason we’re recording this, you know, right before lunch. Now I got New Haven pizza in my head.

Anthony Ianni:

Hey, I’ve been there.

Bryan Traeger:

I have too. It’s awesome. So I’m trying to distract myself from that thought and get back to—

Anthony Ianni:

No, no, let’s talk about it. Their pizzas were amazing. An old colleague of mine, when we used to make sales calls up in New England, we would purposely get way off I-95 and go there just to stuff our faces. It was amazing.

Alan Parris:

I, you guys are drawing some major jealousy from my end because I, uh, before we start this episode, I meandered down to the fridge to see what Alan could have for lunch today. And it is looking grim. I think I’m on day three leftovers of like beans and rice.

Bryan Traeger:

That’s a good combo though, man.

Alan Parris:

Right. I know. So, so the idea of pizza sounds much more enjoyable than what I’m gonna be diving into after this.

Bryan Traeger:

Right? Well, uh, back to the question at hand. You know, the perspective of a lender, I think first of all, this environment shouldn’t be a surprise to anybody, uh, push play on your plan. We’ve talked about this for, since the craziness of 2020, in the middle of the year of, “Hey, this isn’t gonna last long. It’s gonna go back.” Remember, so a dip of 33% in production that Alan, you mentioned the MBA’s forecasting for this year, year over year. That sounds like a big number. It’s not because, you know, 2021 was still absolutely incredible. So hopefully you are thinking a bit more long term and hopefully you’ve been preparing for this day. So push play on that. Um, not everybody does, of course, ’cause the day to day, the whirlwind of everyone’s life gets in the way and plans go sideways.

Bryan Traeger:

So we definitely want to touch on some things that we can, that we suggest to do. But it shouldn’t be too much of a surprise. The baseline was different—2020 and 2021 were different. And now we’re coming to what’s more normal, and normal is chaos sometimes. So, today specifically is a bit different with the world events going on. But in terms of mortgages, it’s a bit more normal, let’s say. So, that’s what the on one side, I think specifically for lenders looking through their production and what it really means for their people, you gotta look at two sides: sales and fulfillment. Of course, there’s the corporate side too. But specifically on these two, with sales, I’m curious as to how many of the new loan officers are gonna stay because 2020 attracted a lot of new talent into the mortgage world because of commissions, right?

Bryan Traeger:

Uh, there are no layups anymore and the refis are drying up. We know this. So the people that are gonna really win know their business, they know what to do in these times. And those who just came for a paycheck for a year or two are gonna be gone. Unless, of course, they fell in love with the industry, which we all did. That’s why we’re still here. Um, that’s what I’m most interested in. It’s interesting if you sit as the head of sales or the CEO of a lending company, um, looking through that and understanding how you can retain your top talent is one piece. But curious as to how that natural attrition is going to work by people self-selecting out. Um, so that’s on the sales aside, what’s really going on. I think, in these strategies and fulfillment-wise, it’s similar to the production forecast, but even right now, what we’re seeing in the data is 35% decrease in loans closed per fulfillment person year over year. So again, a baseline the 33, 35% it’s really sounds like a huge number. It’s really not that big of a number when you look at what its, uh, its baseline is. So my biggest takeaway is think long term.

Alan Parris:

Yep.

Bryan Traeger:

Take your plays off the shelf and push play.

Alan Parris:

You know, Bryan—and not to go on too big of a tangent—that was one of the discussions in the economic panel we were on, which was, you know, probably before, since 2008, this was probably the most new people who have joined the industry. Different backgrounds coming in, different experiences coming in, likely not all will stay in it, to your point on how many LOs actually stay that were new. Maybe trying to chase a check, but it would be good if some do end up staying through, because I think probably more than any other times to 2008, there’s some new blood and some new approaches maybe and some new people coming into the industry, which is, I think is always a good thing.

Anthony Ianni:

No, it definitely is. And and I’m a big believer in that. And one of the, I mean, quite frankly, one of the reasons that I was a attracted to joining the Maxwell team was just what you said, Alan. I had a good friend of mine tell me probably about a year, year and a half ago, say, “Hey, you know, you’ve been in the business for a long time and you’ve seen a lot, you’ve done a lot time to share that information.” And, and I think that, I think, you know, this is, this is a good industry, you know, despite some of the things that happened in the past, at the end of the day, it’s still a good industry. You can make a good living out of this. You can learn a lot and you can kind of branch off into a lot of different things. Yeah. So, you know, you can be a residential loan officer today, but who says tomorrow, you can’t enter into commercial loans. It’s totally different, but the process is very similar. So, definitely a worthy job title.

Alan Parris:

Yeah, absolutely. Well, maybe let’s jump on in, uh, I know Bryan, you’re leading this first one, but uh, first recommendation, I think it’s gotta come down to lenders understanding their profitability from both a per-loan economic standpoint, as well as from their business as a whole. It’s kind of critical to understanding where we are and what recommendations and what opportunities there are for them going forward.

Bryan Traeger:

Yeah. Uh, this is a topic I could talk all day long about, so…

Anthony Ianni:

I love Bryan. I love Bryan. We’ve talked about this and we just like go off and I’m like, I love Bryan.

Bryan Traeger:

So you gotta make sure we don’t talk for three hours on it. But, um, this is one of those that I would at mortgage conferences, sit down, have a beer, and talk with people about this. You learn so much from how people run their organizations. And one that people don’t do—and it surprises me that they don’t—is look at their break-even across their entire income statement and profit and loss by loan. Those two pieces are so important for you as you forecast and plan, but not enough companies do it, not enough companies do the P&L by loan. Um, and so I wanna dive into that a little bit. And the first thing you really have to do is understand what your margin targets are now, regardless of the market conditions, because, hey, we’ve talked about the swings in revenue that you get per loan, up and down and up and down.

Bryan Traeger:

If you’re just reactive to those swings, you’re never gonna be long term successful. So be very conservative with that, know that today is coming the margin compressed environment, or at least relatively. So build your model in a way that’s successful in low margin environments, and maybe success to you is break-even during those pieces. And then when margin comes back, you’re wildly profitable. You build up your war chest, and you can then further sustain those break-even years or months. So that’s one—build your model based on what you believe will allow you to succeed on your revenue per loan. That’s, you know, understanding the average loan in sizes. There’s a couple more things, of course, that go into that piece.

Anthony Ianni:

And would you, and would you say—’cause I agree with you. In my travels, you know, in my former life, you talked to people and sometimes the comment would come out: How did you do last year? What kind of money did you make? Well, and the answer back was, “I know if I have a positive amount in my checking account at the end of the month, and that means I made money.” Well, that’s not a strategy, right? Yeah. So, I agree. I agree with you, Bryan, but do you, do you also—kind of like we plan here at Maxwell, do you recommend that folks kind of get out their crystal balls and think about things and not only in ’23 but ’24 and maybe even ’25, what’s that look like—

Bryan Traeger:

Oh, I—you want the truth, go about 10 years. I used to work at a big company and we did 10-year budget reviews every year. We forecasted 10 years down the road. Obviously, so much changes within 10 years. right? Um, and that business is way different and the energy side, hard assets, um, very, very different than mortgage, but you can still build your models to last long term and allow for the upside and decrease or downside. And that’s good budgeting. And then your actual budget year to year will change and fluctuate based on market conditions. But you should be able to understand worst-case scenarios in this industry and hope to survive based on your plan. And then that’s what I mean, because if you are ever to go and want to sell your business, the first thing that they’re gonna want, you know, a potential buyer’s gonna wanna see is how did you perform in the downswings. Well, if you didn’t perform well or you lost a ton of money, that doesn’t go well for your valuation or the multiple on your EBITDA that you’re trying to sell for. Um, because this market does have so much ups and downs, so if you don’t survive and do well during the down portions, you’re not valuable—

Anthony Ianni:

You know, the back testing, we talk quite a bit about margin and maybe, you know, margin compression and everything else that’s gone on. We probably talk about it ad nauseam. But you’d be surprised how many folks— maybe Bryan, in your experience, when you were at that big company—sometimes when you talk to folks, there’s no back testing of their margin. So they, they kind of set it Jan 1 and then kind of hope and pray through the rest of the year. And my argument is, pull loans and make sure that you’re meeting those targets. So if you’re looking at your performance every month and you’re going, “Wow, that really stinks,” maybe you should look at your margin. Maybe you’re not meeting what you need and not only like corporately, but maybe from a per-loan standpoint too. So, so con 30 product is gonna be different than govey product, right? So, so I’m hopeful. And if you’re not, hint: you should be. But I’m hopeful people, you know, people do that.

Bryan Traeger:

Yeah. And so we’re staying on the revenue piece, and I definitely wanna talk a little bit on the cost side, but a little bit more on that revenue piece. You’re right. Because if you have, 250 basis points baked in for conventional 30, but you’re seeing that, hey, you’re making 275, that’s pretty gravy on top, right? So you could do even more things with your margin or price to decrease your margin, to then increase the amount of loans you’re getting. And that starts to think about break-even, right? So, put in another way is if the market is selling or whatever rate or however you look at it, basis points. If the market is at X rate and you go on sale, the elasticity of your model should allow for you to get more loans.

Bryan Traeger:

And it’s not perfect because mortgages aren’t elastic mathematically—’cause people buy loans if it’s sunny out, people buy loans if they like you, like it’s, if they buy houses, if they like you, go get a mortgage with you. So it’s a little bit different, but you should still be able to get a reaction by going on sale. So if you’re doing really well with margin, hey, go on sale because it’s all gravy get more loans in. And the key there is more loans in goes against your break-even. And that’s where I want to shift to talking about the cost side. So we we’ve already talked margin—hey, here’s an assumption of your average revenue per loan, hundred basis points per loan, things like that, the average loan size, et cetera. Alright. So how do you calculate break-even?

Bryan Traeger:

Well, you need a number of forecasted units to get all that revenue. Now you have that forecasted units. Let’s just say round number 10,000 for the year, those 10,000 units in your budget should also have an hourly overhead allocation to it. And that is taking in all of your costs for non-salespeople, essentially. Right? So non-gross margin stuff, your marketing team, your legal and compliance teams, your IT teams, a lot of software stuff, all that is bunched up into one giant number on your statement and is then allocated per loan. So you’re getting your assumptive revenue per loan. Now you’re allocating your yearlong fixed costs for the overhead and dividing it by 10,000. Okay, awesome. So now when you hit the 10th of thousand and first loan, you don’t have to pay that corporate allocation anymore. If you think of it like that in the corporate P&L.

Bryan Traeger:

So you say, alright, every new loan that we have doesn’t include that corporate allocation and think of that corporate allocation number as around 2,000 bucks. It’s probably more than that, but again, look, we’re gonna keep things simple. That’s $2,000 of accretion. That’s going close to essentially the bottom line. Yep. So you want to then get 12,000 loans ’cause those extra 2,000 loans multiplied by $2,000, but that is making a dramatic impact on your P&L. So that that’s a huge piece to think about. And then when you’re making strategies on, should we go on sale? Should we decrease the revenue we’re taking per loan to increase the number of loans? That allows you to have more loans in the pipeline, which then takes up the corporate allocation and gives you a better headstart at getting the gravy. And that’s the upside. That’s a game that a lot of people don’t play in mortgage. They really, really should.

Alan Parris:

Yeah. Bryan, I think it’s actually, it’s actually falling somewhat into my, even though I haven’t been in the mortgage industry world, but that was the math game I played when doing digital marketing for selling TV subscriptions and credit cards is you reach this point where, when you start to have that incremental loan or that incremental sale, what are you willing to pay for it? And where can you take haircuts and where can you spend more in marketing or something else? Um, and I know it would be different in the mortgage industry, but that play of “do I get more loans at slightly less margin versus less loans at more margin” and “where is the maximum profitability” is a fun exercise to have. And you learn a lot about your business when you have the data there. And you’re looking at it both from a per-unit economics, as well as a total portfolio of profitability. Yeah. And business profitability at the end of the day,

Bryan Traeger:

That’s fun stuff. That’s like, you could be creative with it. You get to hypothesize and you get to test. For you in the marketing side it’s probably a bit easier to do testing like that. Um, with the strategies and mortgage, it’s a bit different, but anybody can come up with those, and that’s a lot of the fun part about strategizing for mortgage companies, in my opinion. I mean, there’s so much you could do and that’s, you know, okay. Uh, so another variable, AI, I want to get your perspective on this ’cause you know products way more than me. And you know, when you look at times that we’re in now, with decreased margins, like we said, there’s no layups, refis that are just hypothetically gone. Um, another way to jump some revenue and get those units in is to add products—non-QM or bridge loans, or, you know, all these different things, business, purpose loans, there’s so many options. Um, and there’s a lot that goes into those pieces of product mix and product offerings. And just wanted to get kind of your take on that piece because it could go down a lot of different ways.

Anthony Ianni:

Yeah, I think you, you hit the nail right on the head. I mean, I think if you, you know, the past two years, what have we been guilty of? The telephone rings, it’s another con 30 refi, the telephone rings it’s con 15 refi. Right. And what you’re seeing is, and just in talking to lenders here at Maxwell, you know, I’m hearing from folks. We used to do more government loans and now we don’t do as much because it’s a little easier do the conventional loans. My argument is kind of twofold. Um, government loans is a little higher margin. You get a little better price whether you’re selling ’em on the best efforts or a mandatory basis, but also too, especially for like RD loans or USDA loans or VA loans, you know, there you’d be surprised how many veterans don’t use them.

Anthony Ianni:

There’s always this thing. Well, it’s much harder to do a government loan. My argument is you’re serving the populace. But also, and you’re doing a good deed, but also too, you can originate higher margin products. Same can be said with jumbo, same can be said with the non-QM stuff, as long as you’re thinking about non-QM. So you’re starting to see some guys kind of dip out over the fringes and offer, you know, stated income stated as no asset. No job, no life, no whatever. And I would say, be very cautious with that. I mean, it’s good. There are definitely folks that are self-employed that need help to receive home financing, but be very careful and very cautious in how you’re originating that process. And I guess the easiest way for me to say this don’t get cute.

Bryan Traeger:

Credit risk is super important. Oh, big time.

Alan Parris:

Yes. Yeah. I mean it, I mean, the stat I saw the other day is—I mean, not-QM obviously has been talked about a lot and it went on a little bit of a different path in 2020 and 2021 from an investor standpoint, but supposed to double in percentage of the market from 5% to 10% in 2022 versus 2021. Yeah. So it seems like investors are a little bit more comfortable with it, as well as getting back to meeting the population on where they are and what product is actually the best fit for them.

Anthony Ianni:

Well, you know, the other piece of that too is the originators of the non-QM. They, you know, they have the ability to at least perform some sort of underwrite on it, whether it’s, you know, maybe it’s not a full underwrite, but at least they can take a peak at it up front. And while that doesn’t relieve a lender, maybe of all their reps and warrants and responsibilities, it probably gives them a little bit of comfort to originate those loans. So I think that’s gonna help that percentage.

Bryan Traeger:

Are you talking like a non-delegated program?

Anthony Ianni:

Yeah, exactly. Yep.

Bryan Traeger:

Yeah. And I guess that, so doing the non-delegated stuff for some of these new products, or even a brokering amount, if you really need to.

Anthony Ianni:

Nothing wrong with that,

Bryan Traeger:

Nothing wrong with that. Because one of the problems that I know of is the education down to the loan officer. Mortgage is extremely complex. And when you start bringing out differences between, you know, basic things like FHA 30 or the conventional 30, when a first-time home buyer’s, you know, trying to do the 97 FHA program or the Home Ready, there’s so much nuance between those two similar products. And now add another 40. So educating the loan officer team is really important. And sometimes from their seats, it’s a distraction to their normal job, but we know that for the corporate entity, it’s super important to be able to have the units flowing. So you have to invest in the education. You have to somehow get buy-in from those loan officers to take time outta their money, earning time, periods of their calendar to invest in that because it’ll generate more loans for them too, or more income for them. And then obviously there’s more education further down to the borrowers themselves. And so that is really a tough problem to solve. A lot of times LOs don’t even know how to originate or sell the FHA product.

Bryan Traeger:

You’re right. And not that you’re making decisions or steering borrowers into a product, you need to get them the right product for them, but you need to understand all the products that you have in your availability to give them what’s best for them. And that’s so key.

Anthony Ianni:

It is. And I agree with you on the education piece and what I really wanna, you know, if you guys, if you’re a wholesaler correspondent rep out there listening to this, which I hope you are because you should be, roll up your sleeves, get in these offices again, train these new folks on some of the product nuances. We have a legion of, for example, if we go into an adjustable rate market market, we have a legion of folks that are working in the industry that have never originated an ARM, closed an ARM, underwritten one. I’m gonna hold onto my seat, think about compliance issues with those. Um, so, but, but I think it kind of behooves the buyers so that the folks that are out there calling on the brokers and the non-del guys and the delegated guys get in there and roll up your sleeves and do some training for these folks. I think it starts there too.

Alan Parris:

And to ask a stupid question, why is that? What’s the force of, of why that’s been hard or difficult? Is it because loan officers have their kind of bread and butter at a given time and thus they have their products that fit that? And so they don’t find the need or desire to go fully explore all the product options, or is it on the corporate side that there’s an issue or what’s the challenge of it?

Anthony Ianni:

I think it’s human to take the path of least resistance. So do I want to drive through the tunnel or do I feel like climbing the mountain? Well, if you’re live in Colorado, you’re climbing the mountain. But, but unless—

Alan Parris:

You’re a lineman,

Anthony Ianni:

Well, that’s true too. So, you’re watching NASCAR and it’s all left hand. There you go, Bryan. I was a lay.

Bryan Traeger:

No lays on this channel, alright?

Anthony Ianni:

I’m sorry. Um, but I think it’s, I think it’s path of least resistance. And I don’t mean that in a disrespectful way. I mean, when the telephone is ringing 20 times an hour, what are you gonna do? I mean, I know what I would do.

Bryan Traeger:

Well, yes, I do believe that you’re right. I think corporate trainings are extremely boring.

Anthony Ianni:

They are.

Bryan Traeger:

Right. So you gotta change the way that you’re doing this. And it comes from a variety of people. It’s the correspondent reps. It’s the internal teams that make it not boring. And the typical answer of making it not boring has been order pizza. And I know guys, I’m hungry. I want pizza right now.

Anthony Ianni:

Right now.

Bryan Traeger:

I’m hungry. Right. But do something different, make it fun, make it, I don’t know, have a happy hour, an event for a new restaurant that just launched and host people there and do 20 or 30 minutes and give them documentation. Think differently. It’s not just in a webinar or onsite with pizza. You gotta do something different. So that’s on the trainer side on the trainee side. Yeah. It is path to least resistance. But the situation is that when you have just one product, you’re gonna have thousands of borrowers with the unique situations for that one product. And then you have to navigate them through that one product at another product. That’s another 3,000 situations. And so it’s not just learning it, but then being able to navigate all those unique borrowers and their profiles in that new area, which is overwhelming. It can be scary. And that’s where you need assistance with underwriting. You need assistance with your corporate team. You need assistance with the correspondent people. That’s where the support comes in. You just need to jump in a little bit and don’t be overwhelmed with all the newness of it, but have the resources and reach out to people and read your docs and reread, re-listen to your webinars and things like that. You gotta, it takes commitment from both sides.

Anthony Ianni:

Yeah. I agree with you, Bryan. I mean, you just hit the nail on the head, you know, you have to look at everything. Can you originate the product profitably, can you, if you are a large institution, you know, are you gonna be able to get the closing docs? Are you gonna be able to meet the compliance responsibility? And you’re right, just kind of lean in on all of that and flow it out. I think it works. Yeah. That’s how we did it back when I was sitting by the desk.

Bryan Traeger:

I mean, that’s right. And then you could think about it by component, like, hey, we wanna turn on non-QM. Okay. Delegated, non-delegated. Well, maybe we should, whichever one you choose. Then there’s outsourcing partners. There’s whether it’s to the correspondent or to an actual outsourcing company, there’s a lot of options that you have. You don’t have to take all of it on yourself and get overwhelmed or overwhelm your team. And so really think of that and the different options that are out there. And hopefully you have partners that are giving you advice too.

Alan Parris:

If you’re a lender and interested in exploring non-QM—just using that as an example, but additional products—how do you go find that right partner? At least from my shoes, it might be daunting in the sense of doing something brand new, new product that you don’t have relationship with. Like, how do you go do it?

Bryan Traeger:

Yeah. Uh, and this was one of the roles that I loved being in was, well, information comes from a lot of different ways. A lot of times you’re seeing your loan officers, whether it’s lose deals or hear from real estate agents or something that this new investor has this new product, or just a product in general, that’s beating everybody. So you feed information or you’re fed information from a sales staff of what they want to be able to have to be competitive on new investors for new products. That funnel’s a little bit different. So then you probably talking with who you’re working with on the secondary side, whether that’s your outsourced hedge provider or your reps who just don’t play in that band or play in that product, but know people who do and can introduce you there, or, you know, you have, uh, unfortunately the mortgage industry is known for higher attrition, right? So you have constantly new people joining your organization—learn from them. They’re gonna be saying, “Hey, try this with that. And this and that.” And that’s up to the secondary market’s department or your business development department or vendor relations—I don’t know, could sit anywhere—of understanding what’s out there and go and get information on that piece, but call it business development because that’s what’s truly going to drive the margin and AI, you know that more than anybody, I kind of want to get your perspective too on business development, on secondary relationships.

Anthony Ianni:

You mean in terms of the correspondent reps or the sourcing for new business or vice versa?

Bryan Traeger:

Yeah. I mean, all encompassing and so, “Hey, I have a new product that I want to get non-QM.” Yep. Make it easy. Right? Or any jumbo product, let’s think of non-QM, alright? Well, I know of five companies that I Googled or heard from internally. Why would I choose one over the other? And how do I go about doing that?

Anthony Ianni:

Yeah, that’s a good question. I mean, the way that we used to do it before was, when we heard of a new product since, you know, when I first started in business, low guy on the totem pole, they sent me to the courthouse in Westchester, Pennsylvania. And I actually went through the recorded mortgages, the record sections in there to see who were they selling all these loans to back in the day. It was Fortune Savings. And that’s how we found out that they were doing no income, no assets. And so we called them direct and did that work. So you can do a couple of different things. You can, you know, certainly utilize your resources out there. I mean, if you’re talking, if you’re a client of Maxwell’s, for example, call us. I mean, we have a good pulse in what’s happening out there.

Anthony Ianni:

So, you know, we see a lot of data. We can see where things are going, you know, on the capital market side, we have our ear to the ground. We hear who the new investors are. We’re seeing new products, so call your vendors. I think you were right on there. You also, too, you were talking about, you know, if you’re hedging, your hedge advisors definitely know, they’re gonna know if, because they’re data hounds, they’re gonna know everything about every investor there. And so they at least can help you with that information.

Bryan Traeger:

And I think that’s one of my favorite pieces of the mortgage industry and why it’s known for being a relationship business is because a lot of people are consultants or they’re consultative in their partnership with you. Um, they’ll pull a rabbit out of a hat, and they’ll gain nothing from it besides just helping you, you know? Right. And that’s what’s really fun and exciting about the mortgage industry. And you have to rely on your staff or your teammates, as well as your current partners and be open to meeting new people or companies.

Anthony Ianni:

You do. And you know what, as you’re vetting new investors, you have to ask hard questions of your investors. Relationships are very important. You need to like the people that you do business with. There’s no doubt about that, but you know, you have to ask the hard questions and don’t take the BS answer either. You need to find out about turn times. You need to find out about how hard they are in underwriting. You gotta ask those questions, ask for those references. If you have a well oiled machine today, now all of a sudden you introduce a new product with an investor that gums up your works, now you have a little bit of a problem.

Bryan Traeger:

Right. Don’t be afraid to beat ’em up.

Anthony Ianni:

Absolutely.

Bryan Traeger:

This is the time again, compressed margins, right? So the revenue is decreasing. So what can you do to decrease your costs? Negotiate, renegotiate, talk to every single one of your partners, investors, warehouse lines, you know, credit providers, everybody. Go beat ’em up and try and get better rates, better price, or the terms of investors, get better revenue and say, “Hey, you’re my number three right now on the com whatever product I want you to be. Number two.”

Anthony Ianni:

It’s interesting. Oh, I’m sorry. Go ahead.

Bryan Traeger:

I was just gonna say playing those games is what it’s all about to generate one basis point or two basis points, ’cause in this environment where you’re break-even, a basis point is amazing.

Anthony Ianni:

I love that stuff. I’m giving you a virtual hug through my screen right now because it’s so true. I say this all the time and like you know, it goes to my favorite place and my favorite place is the bottom line. Like all these behaviors that we all should be doing, we don’t do right when times are good. But you know, lean on your partners. That’s exactly right. Because if you can save a basis point or two basis points on each loan, they absolutely add up. Right? Oh yeah. I mean even in hedging your pipeline, if you’re not hedging today, think about it. I understand that. You know, everyone heard some of the horror stories with margin calls, et cetera, et cetera in 2020, I’m not gonna lie, having lived it March, April, May, June and probably July of 2020.

Anthony Ianni:

If you looked at people’s mark to markets in September who were hedging, you would never know anything happened. And that’s a good thing. And a lot of the folks who hedge. So I’m saying directing this towards you folks that are listening that are not hedging that are thinking about it. If you talk to the folks that hedge that got through that, which most of ’em, they will tell you that thank goodness that they were doing that because hedging makes you more efficient and efficiencies are rewarded in quicker turnaround times, less hedge cost, you can recycle things. You can recycle your TBA coverage and ultimately get those loans to market a lot faster than your competitor. So I think give some consideration to that too, if you’re not thinking about it.

Bryan Traeger:

If you’re an organization who says over the next month, two months, we’re gonna really analyze the secondary market function that we have. Of course, there’s some really good consultants out there that you could bring in and help you. Um, but what are some other things, given your background and experience that you would suggest some of these folks consider when they’re doing that review?

Anthony Ianni:

Well, you know, the one thing is don’t think it’s gonna upset your back office too much. So, if you are most of the hedge advisors today, at least you’re making the transition from best efforts to mandatory. You’re gonna mark your price against the best efforts price. And then when you ultimately sell and commit that loan, that closed loan, you’ll simply look at the difference and there’s some other variables that go into it, but you’re gonna look at the difference to where you could have sold that loan best efforts to the lift that you picked up by selling it on a mandatory basis. So, it’s gonna do a couple of things. It’s gonna make you more efficient in your back office. Today is a great example. If you are hedging your pipeline today, you’re not waiting for the LO for rate sheets to come in.

Anthony Ianni:

You can simply go into your LOS, decrease your margin as the market is rallying or vice versa. For folks that are a hundred percent best efforts today, you probably have already experienced to the positive today. Probably a couple of rate decreases. Now you have to stop what you’re doing, set up new rate sheets, make sure that you have the best, you know, you’ve done your best execution and your loans are going to the proper investor. And then you have to lock them in individually. There’s a lot of work. So you’re gonna save on all that, all that noise that goes on right there. That’s one piece from an underwriting standpoint. Your underwriters are smart. So trust those folks they know. And overlays aren’t that bad today.

Anthony Ianni:

If a loan can go to investor A, more than likely it can go to B and C too. So your process isn’t really gonna change that much. And I can promise you having done it for a long time, it will reward you because you will ultimately become more efficient. I have talked to so many people that made the transition from best efforts to mandatory, and they have come back a year later and said, I’m so glad I listened to you. We are making more money. We’re more efficient. We can deploy our employee assets elsewhere. We can get more done.

Bryan Traeger:

You know, one of the pieces that I really heard there too, is just fundamentally how you can look at your business and really break it down step by step from the bottom and say, these are all the things that happen and looking at them, whether it’s you tasking it out to somebody to really look at step five through step 10 and, and saying, where is their margin? Where can we negotiate? Where can we think differently? Where can we use some help? Where can we, whatever it is or it’s yourself, who you are, that person who’s very curious, and you’re jumping in and helping out in these areas. That’s what I’m hearing. And there’s a lot of steps involved in this whole thing, right? But you just mentioned one thing, one strategy that had what, 15 ripple effects across board. So, that’s where you’re gonna generate it. We do the same thing when we’re building technology, um, is you save a second. Okay. Well, a second multiplied by 10,000 loans is awesome. Okay, now let’s get another second. Let’s get a another second. Um, those are the automated pieces, right? There’s you do the same thing with your, your process flow of everything, and you could save a dollar, save a second. They will accumulate. And before you know it, you’re not break even anymore. You got 10 basis points on your net income when you should have made no negative.

Anthony Ianni:

You, you know, you touched right on it, Bryan too, the embrace of technology. So here at Maxwell, we have Maxwell Processor Edge, right? What we’re hearing from our clients that have implemented that system is they’re seeing a time savings of—and correct me if I’m wrong, Bryan, you’re a little closer to it—but they’re seeing anywhere from 20 to 25% time savings. So what does that equate to, if you are presently hung up in processing and you’re doing it the old way, and you can now shave off 15, you know, 15 to 20 to 25% of your processing time? That difference, now you can get that loan quick, much quicker to closing quicker, to underwriting and quicker out the door. That difference could be as much as, on a best effort basis instead of locking a loan in for 45 days, now I can lock it in for 30, just by virtue of utilizing some new technology to streamline your process. You, by virtue of that, have picked up probably seven or eight basis points in price. And now you’re more competitive versus the guy across the street.

Bryan Traeger:

And on top of that, yes, you’re saving that time, but you’re also, if you look at it the other way, you’re giving them more time. So they’re not gonna sit and twiddle their thumbs. Now they have time, those processors, to go and learn how to process a non-QM loan. Right. And they can help their loan officer. They can. I mean, the processor also, you know, they’re the quarterback with the borrower, but a lot of times they’re the ones working day to day and executing with the borrower. Right. So now they are helping everybody. So yes, that is a huge piece of it.

Anthony Ianni:

It’s amazing the cost savings that you make. I mean, even if you’re doing mandatory today, you know this, but I mean, the efficiency of it, if you can, if you can continue to whittle down that time in manufacturing, you know, maybe you can instead of selling it on a seven day mandatory, maybe because you’re efficient in your post-closing area, you can blow that loan out and get it purchased in five days. I mean, here at Maxwell, we’re working on some things in the back office where we wanna shave that time off. So we’re seeing it in the loans that we’re presently purchasing today, we’re seeing a pretty efficient process. That’s not beating people over the head, so it’s competitive advantage. So you have to think about those things.

Alan Parris:

Yeah. Bryan, I know we had an episode about this, uh, probably almost a year plus ago, but it goes back to mapping out your business and figuring out and brainstorming and white boarding, where are there opportunities and what can we challenge on how we do things today like that? When you look at any successful entrepreneur that’s done amazing things and business, and has grown a super successful business, they’re challenging how and why things are done a certain way and finding opportunities, even if they’re headwind. So, it’s not different here. It’s understanding your business, challenging how things can be done. And like you said, little basis points in here and there can add up massively at the end of the day. No doubt.

Bryan Traeger:

Yeah. And a lot of times when you’re building those flows out like charts and diagrams, you’re thinking about it, like typically on how to make it more efficient for the borrower and how to make it more efficient for your staff. And hey, awesome. Great. Do the same exercise, but only focus on your vendors or your partners or whoever you have contracts with. That’s where you could start to figure out some savings too, not just efficiency, time savings, but monetary savings too, that flows a little bit differently, but it’s still all effective.

Anthony Ianni:

Yeah, it absolutely is. I mean, look at their processes too, because you know, there are certainly correspondent buyers I out there, for example, that are very fast. But do they come back to you 60 days later and ask you for documents on the file that you’ve long since forgotten about? So look at those processes.

Alan Parris:

I think that’s a good stopping point. Uh, you know what my favorite part of this episode was is my role in this thing was I was sitting at the top of a hill and I just put a little snowball together and I just pushed it downhill and you two just ran away with it. It’s just phenomenal. So, yeah. Well, hopefully everyone found this valuable. AI, thank you so much for joining us. We’re gonna have you on the show quite a bit more often, not to be a spoiler here, but, you’ll be visiting us much more frequently. And hopefully that gives you guys some inspiration, but also some ideas and some practical tips to start focusing on how you can make 2022, a successful year for you, a profitable for year for you, and also set your business up for success through all the highs and lows that come in this market that we’re in.