Lykken on Lending

 

In our Hot Topic this week, David & Jack are gonna do a special podcast, talking about the economy, where things are at with the latest trends on leadership, & how you should be leading your people. They are gonna gather around on the 4th of July and may have some barbecue going in the background somewhere.

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Hot Topic: Latest Trends On Leadership

Good to have you here with us. Joining me on this special 4th of July episode is my co-host, Jack Nunnery. Jack, happy 4th of July to you, my friend.

Happy 4th of July to you, David.

We also have joining us on the episode as a special, Les Parker, who we usually hear a recorded version of what he has but now we have him live. Les Parker, thank you so much for dialing in. I appreciate it.

I’m glad to be here. I got up on the right side of the bed, and I was breathing, so it was great.

Happy 4th of July. This episode is created by mortgage professionals. It is for mortgage professionals, and we’re so grateful to have you as our reader. Again, our commitment is to bring you timely information. We like to add some humor, and we’re going to be doing that. We’re excited to be doing a special episode for you. We want to talk a little bit about the market. We’ll talk about economic conditions, talk about what is going on and what you should consider in your attitude being.

This is going to be a market that I believe is going to be marked by leadership or a lack thereof. Those that have great leadership are going to succeed and prosper in this time. Those that have weak leadership are going to struggle and have a higher probability of failure. We’re seeing that happen. We’re seeing billions of dollars of production move from one company to another. We’re going to be talking about that in the Hot Topic segment.

Nonetheless, we want to thank our sponsors, Finastra Fusion Mortgagebot Solution and FormFree. We’re grateful to have them. There are $3 trillion in mortgage verifications that have been processed through their system. It’s a great tool. As well as Lender Toolkit, Snapdocs is working backward from a future where every closing is a flawless experience. Their aim is to completely eradicate errors from real estate transactions. Imagine a process that eradicates all errors.

Also, a Total Expert. They built one of the most successful customer journeys that you can find out there in the market. They nurture campaigns. They do texting. They do emails, and then the nice thing about the Total Expert platform, it has some cool recruiting platform aspects about that in their platform. Get ahold of one of their salespeople or call me. Josh Lehr and I talked about recruiting on May 9th on the show. Go check that out.

As well as SimpleNexus. Thank you for them. We had Shane Westra and Jay on, and they did a great job giving us an update on June 27th. Check out that episode. We’re grateful to have our partnership with all of them. Also, the Mortgage Bankers Association of America, Lenders One, Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, the Mortgage Advisory Tools and DW Consulting. Special thank you goes out to our regulars, most of who are taking the day off as they should but we talk Les and Jack to join in on the show. Without further ado, let’s go ahead and hear from Adam. What you got, Adam?

I’m Adam DeSanctis, and welcome to the Mortgage Minute, the latest news from the Mortgage Bankers Association. The Wall Street Journal published a letter to the editor from MBA President and CEO Bob Broeksmit highlighting how Special Purpose Credit Programs or SPCP is an effective way for lenders to responsibly help serve minority home buyers with the undue risk to taxpayers. The letter was written in response to a June 13th editorial that was critical of components of Fannie Mae and Freddie Mac’s equitable housing finance plans, including the commitment to expand the use of SPCPs.

You may recall that MBA and the National Fair Housing Alliance announced a new online Toolkit for Mortgage Lenders interested in developing Special Purpose Credit Programs. Go to SPCP.com to access the toolkit. Finally, more than 300 MBA member companies have now signed MBA’s Home for All Pledge, representing a commitment to promoting minority home ownership, affordable rental housing and company diversity, equity, and inclusion. Visit MBA.org/homeforall for more information and to sign the pledge on behalf of your organization. Only one senior member’s signature is required. That’s it for now. Thank you for reading.

Good job, MBA Home for All and lower rents. Rents are going up like crazy out there. It sets a good motivator to get into home ownership. We’re grateful for the MBA and all of their programs and efforts on the hill to support our efforts as lenders and those of us in the mortgage industry, whether we be direct or supporting in some way, shape or form as we do as a consulting firm and a show. We support the MBA. We’re grateful for our partnership with them.

Be sure to sign up for the MBA. If you’re not signed up and are not a member, you need to become a member. Why not support this organization with your membership? Get involved and meet other peers in the industry at the conferences. These conferences are put on intentionally with great content and speakers. I’ve been a speaker to a number of them.

We’re grateful for them, and we’re encouraging all of you to sign up. You must also sign up, and this doesn’t require any fees, any money, not a zero zip. Sign up for the Mortgage Action Alliance App we always refer to as MAAA. You can find it in your App Store, check it out, download it, and have your voice heard. It’s easy to do. It’s a few clicks and your support of what MBA’s doing or whatever position you want to take on any of that. You don’t have to exactly sign up for the MBA, and say, “Will do and I do,” so you can have your word heard of doing that.

Seeing as many of our regulars are out and gone, we’re going to get right into a great discussion. Jack and Les, again, thank you so much for joining me on this holiday for a special episode about what’s going on with interest rates. Have we seen the highs, Les? This is not the time to try to be picking highs and lows at a crazy time. Let’s start with you, Les, talking about the market.

I want to start with Independence Day. Are you ready for this?

Yes.

The absolute worst Treasury performance took place in 1788 until the first half of 2022.

 

Tell us about that. I’m interested in your comments.

Deutsche Bank did the research and looked at the total return of US Treasuries, which they had to do as a proxy. You’re going back over centuries. They looked at the index, and at the end of May, so the first five months of a year, the return on the Treasuries was down below 10%, and the last time it was below 10% was in 1788. At that time, it was close to 30%. It was 28% or so.

It’s a negative return, a loss considering it was after the Revolutionary War, and we were skipping the lenders that helped us free from the crown, and all of us that are Tories would’ve been supporting the liberation of American colonies. There are plenty of loyalists out there that probably would’ve been on the side of the Crown but that was the last time that was that bad of a performance.

Jack, did you know that detail? I didn’t have that.

I did not know that.

It’s Deutsche Bank’s research.

You’re reporting on it. We’ll give you the credits as a reporter.

It’s like Matt Graham. He just reports, so Les Parker more or less reports.

You might as well sign up for Les’s newsletter. You could do so by going to TMSpotlight.com and putting in the word POWER for PowerSeller to get signed up on it. Tell us a little bit about your newsletter, Les. This may be a good opportunity. You are up at O-dark-hundred, write everything all night, and you’re coming up with a music parody. You don’t even know most of the songs that you put in your parodies.

I just did one, and maybe somebody out there will recognize this. It’s, “Candy, candy, candy, Bears can’t let it go. Trades are crazy. Bulls know, maybe candy gladly.” Now I imagine that was probably talking about a different type of candy that I think about but it’s Candy, Candy is the name of the song.

Tell us a little bit about what all that goes into that newsletter.

I started in 1994. Before that, I wrote together for about six years with Greg Crosby, who sponsors the newsletter. I’ve been writing a long time. Here’s how you can teach an old dog new tricks, and that’s if they sign up for Grammarly. My grammar is bad. For the last few years, I’ve been using Grammarly, and I write better now than I ever have written simply because I have to correct the 16 to 20 errors in almost every letter. That tells you how bad I am.

With your dedication to doing this for as many years as you have, Les, some of the industry leaders and some of the top CEOs read this faithfully every single day. They always say, “If you want to be successful, do what successful people do.” Successful people are reading your newsletter.

I know there are two people that I can mention. Jack has been very kind in his words over the years, but Stan Middleman, who’s the owner of Freedom, uses it to help formulate what his long-term outlooks are. He’s also very insightful. He is a student of the market, much like how Jack Nunnery is. Another person that is somewhat of a competitor to us at Transformational Mortgage Solutions but is a great representative of our industry is Joe Garrett. Joe Garrett focuses more on banks, and he used to be the President of Thrift out on the West Coast.

He’s been the owner of various different banks and is on the board of one of the most successful. They have the highest ROIs in the industry. He lives in Northern Cal but faithfully reads the newsletter, and I appreciate his positive comments. He invited me to come to his annual dinner for his customers. Our friend in this show is Doug Duncan, and another friend in this show is the attorney that we both know and love. When Joe Garrett has been at his dinners, he stands up and says, “I read Les Parker’s newsletter every day.” It’s for 200 of his faithful customers, and he writes a newsletter. It’s once a week, and it’s full of anecdotes and all types of things about movies and songs.

You do a great job. I want to give a shout-out and encourage people to sign up for your newsletter when the leaders and some of the top mortgage professionals in our industry are reading it every single day. I would encourage you, readers, to do so as well.

I have to deal with depression regularly overriding the newsletter because I know that about half the readers only read my subject line and go down to what the song is. I have to deal with that. They don’t care about my content. They only care about my subject line and the song parody. I deal with that every day. Life is tough that people only appreciate your song parodies.

They are good but I appreciate the whole letter. It is one that I’ve read for years and years. It’s outstanding. Good job on that and I thank you for your faithfulness to that. It’s helped many of us and learn a lot about the capital markets along the way. Be sure to sign up at TMSpotlight.com, and you can put in the word POWER and get the paid version for free. There you go. Jack, you’ve been reading it for years as well. Any thoughts you want to end before we move on?

Anybody in this world that helped me sound smarter than I really am, I appreciate that effort. I would read Les’s newsletter before going into our monthly governance meetings or balance sheet committee meetings when I worked for a bank. I had topical, timely comments to make in those meetings that were not my own. They were parodying Les Parker. Les has always been a fave of mine, David, because he made me come across as smarter than I was. I much appreciated Mr. Parker.

Interesting. There’s another person I have a lot of respect for in this business. His name is David Brown. A lot of people know him as Dave Brown. He’s the Head of Cap Markets over at Supreme Lending, and that’s the same thing he says. There are some tidbits in there that people are able to latch on to. Dave, I realized something that I never mentioned on the program, and it’s something that we should do. In the newsletter are anywhere from 1 to sometimes gets up as many as 5 charts and graphs. A lot of people don’t like charts and graphs. I happen to like charts and graphs. The people that create charts and graphs are the people that figure. There are those that we know that liars figures and figures lie. You have to watch out for graphs and put them in context.

I try to put them in the context or at least select thoughtful ones but they come from a guy that publishes, and it costs around $200 a year to subscribe. It’s called The Daily Shot. It’s Lev Borodovsky, a PhD. He did hedge funds and has been an analyst for a long time. He’s astonishing that he puts together 30 different charts every single business day. It gets published about 5:00 AM Eastern, Monday morning all the way through Friday morning. He only shuts down maybe 5 or 6 times a year.

You’re getting a lot of information, and he collects these from leading people that are putting out the very good stuff. It’s sometimes a little hard to understand and decipher what they’re saying. At least I have some trouble with it. He is a Neo-Keynesian but does a good job with short sentences and charts that will give you a little bit of content.

Anyone could enjoy it. I know people that have gotten their kids turned on to reading these, looking at these charts. Global Macro Currents Visualized. It’s TheDailyShot.com. It’s astonishing what he does, and I appreciate it. He allows me to freely use these in republishing them. You’re getting them a day later because we’ll get it at 5:00 in the morning, and so that next night, I’m doing it, and that’s probably one reason why he’s comfortable with it. He’s good.

I encourage that. I was raised by a dad who took the sports page out of the Sunday paper and said, “If you want to be popular at all the parties, read the sports page. You can talk a lot about if you want to make money,” which obviously I was raised by an entrepreneur and making money was a stated goal. We threw away the sports page and went into the business section. We would’ve subscribed to that if it was available to us back in the ‘50s and ‘60s. I would’ve loved that. I love graphs. I always get the messaging because of what you write, and it’s taught me so much about the capital markets.

If you want to be popular at parties, read the sports section. But if you want to make money, read the business section. Click To Tweet

Stop the presses, Dave, who were only allowed to read the business pages. How did you become a great singer and a top loan officer without knowing some sports?

I picked up on it but it was not the sports section.

The truth comes out to the audience.

The point is that I was raised in a family that stressed the importance of the business section and took us through the analysis. My dad taught me from the earliest ages what sectors were P and E ratios are and why certain companies are. We worked on the fundamentals, and then later, I learned about the momentum of trading. All of that plays into what we’re doing, which is why I’m so glad we’re all together on this episode. What I want to get into is the economic data. Before we do, Les Parker made me aware of another tidbit of information that you need to learn about my co-host, and that is Jack Nunnery.

Did you know, readers, the reason Jack is so effective on the episode and was so excited to join me and had talked about it a few years before he retired is that he is 1 of the top 5 debaters in the United States at the collegiate level. Are you aware of that? Les Parker made me aware of that. A round of applause and celebrate for a minute, Jack Nunnery, your phenomenal ability. There we go. There’s a round of applause.

To keep the facts factual. I was top five in high school and then recruited to debate in college. I was President of our Forensic Society at the University of Florida back in my day and debated all the way up until about halfway through my senior year. After debating for six and a half years, I burnt out at that point, and I focused on getting a diploma.

The other thing is like, “What am I going to do when I grow up?” It starts kicking in towards the end of your college degree, and so even in high school, which is more impressive to me.

I started in my sophomore year and in high school. I loved it. I’ve got a question for Les. Last time, David, you and I were talking about the ten-year and whether or not we had hit the ceiling with it, and you had some very good insight, I thought, with regards to the focus of the markets, and I say markets, the bond market, the equity market has been on inflation.

As the focus begins to bifurcate and a lot of the focus is turning to the recession, that has an impact on the bond market. If you could share that thought string with the audience because it gets help frame it for me, why we saw the ten-year run and run, and now, there’s hope that as we enter into most likely a recession, we could see a rally in the tent. If you could share your thoughts around that, it would be very helpful to frame it up for me, Les.

I have a question for you, Jack. Do you play chess or did you play chess when you were in high school or college?

I was on our high school chess team. I had a US Chess Federation Rating. In high school, I sat the first chair. I was undefeated. I had one draw and won every other match.

I’m not surprised. That’s what I would expect because the reason you are probably a top debater is the same reason why you would be very good at chess, and that is you’re seeing multiple moves ahead. Whereas your debater, whether you’re the affirmative or the negative, you knew where the other side was going to be going, and so you were able to have your counter punches if you’re a negative or you were able to know how they were going to attack you negatively. You could address it in a proactive way in your affirmative presentation. Is that fair to say?

That is fair to say. You always tried to stay at least 2, and if you could get out to 3 or 4 moves ahead on the chess board, then you were on fire that day.

That Grandmasters, I understand, can go out twenty moves ahead.

I couldn’t do that. That’s why I got into mortgage banking.

That’s where I want to go with understanding why because there’s got to be plenty of people saying, wait a minute, what happened? Mortgages were up 50 basis points a few days ago, and now they’re down 50 basis points. How can that happen when we only hear the headlines on inflation and know that the Federal Reserve is beginning its tightening? How can it be? If they’re starting to increase rates and reduce their balance sheet, and we have more and more inflation numbers that are still at these high levels, and we hear fresh data coming out of Europe with high inflation even higher than what the US is running, then how can rates be going down? Don’t you get those types of comments, Jack?

 

I’m going to put myself in that class of people that were asking that question going, “We’re so early cycle in the Fed’s response to inflation. What does the trajectory of this thing look like?” I did a lot of reading and started adding in the other drivers to it but you capitalized it when David, and you and I were talking.

One more thing to help people understand what I’m getting ready to say. I remember admiring Bobby Fischer. Some in this audience wouldn’t know about that Bobby Fischer is considered the best US chess player in history and that he beat the Russians. Historically, it was only a Russian who was able to be the best in the world and win the Grandmaster championship, whatever it’s called. Bobby Fischer won, and he became a national hero over that.

It was similar embracing even as when Neil Armstrong put that first small step for man and one giant leap for mankind. That was the magnitude of what he did. It was comparable to the Miracle on Ice in the 1980s when the US won hockey for the first time in the gold medal. I watched him on an old Johnny Carson, and he was being interviewed by Johnny. It’s a hoot to what?

It was hilarious how they interacted with one another, and there’s a Rubik’s cube. Some people know about that. It was a craze for a while. It’s still available. You can still try and do it. Bobby Fischer was asked, “Can you do the Rubik’s enthusiast?” It was deadpan. “How long does it take you?” “It takes me ten seconds.” It was that absurd number like that. Here’s Johnny didn’t believe it, so they handed it to him. He does it, timed it, and it was that length. The only way you can do it is you have to think forward. That puzzle is hard. It’s hard for me, but the only way you can solve it is to know where you’re going with each move. If that’s what it’s like for Rubik’s Cube and we think about chess on a two-dimensional chess board, you have to be the best in the world.

You have to think forward twenty moves. What is happening in an extremely complex system that is global finance? How many moves ahead do you have to be where the cutting edge of finance is? You have to be way ahead. Before I get to this final conclusion, there’s one more thing. I wish everyone in the audience knew about that they may remember the collapse of the Russian ruble. Some might remember that.

By the way, not the disco round of the collapse but the one that took place in the ‘90s, and some may remember that long-term capital was a fund that had been investing in various bonds around the world. Everyone that reads this and that’s pulling this down on the episode, if you don’t know about long-term capital, read it on Wikipedia. They do a fine summary of it and it was a real interesting power play.

The long and short of this may be why they failed but I believe it was five Nobel laureates as part of the fund. That may have been why they failed because of hubris. The reason they failed in a short version is they thought they could arbitrage different markets with liquid gets the Russian bonds and other countries, and they would hedge them with liquid instruments in Treasuries. It’s more complicated than that but that gives you a sense of it.

Anytime you’re trying to arbitrage where you’re trying to pick up an edge because of inefficiencies in the market, it requires that you be somewhat similar instruments. If you aren’t, you will get burnt by liquidity. It’s absolutely destroyed. Long-term capital is a great example of hedging something that’s illiquid with something that’s liquid. Now I’ll give you the thing on the bond market, why it is that we are where we are now.

Technically, the market has been off a little bit but we’re now in a bull market. How is it at 3/5 bond market reversed and dropped 50 basis points over the last couple of weeks. It’s because of the shift, and it only takes small shifts from an inflation mindset for our investors to a recession mindset. Rather than being obsessed about the latest news on inflation, “How much higher oil is? Where is oil going to go? Coppers going to the moon. Gold is stable but it’s not losing value,” therefore we know that we’re in a market that seems to be inflation oriented.

Other currencies are dropping against the dollar, so other countries are having problems with inflation. “When will it happen to the United States? When’s the dollar going to collapse?” All of that stuff is going on in people’s minds, whether they’re equity investors, fixed-income investors, private equity funds or whatever people are investing in. When you shift from an inflation mindset for investing to a recession mindset, then all of a sudden, rates will drop because now people are wanting to know, “How do I preserve my capital? How am I going to find any type of return?” Basically, inflation got swallowed up by the recession.

 

I’m glad you brought up the long-term capital. That is such an important piece of history that I don’t know that it’s been studied enough, especially in light of where we’re at now and some of the things going on. I’ve got something. Jack, do you remember those days? Do you want to add any comments to that?

I’m still following Les down the path of market attention shifting from inflation to recession. We’re going to find out on July 28th, 2022 at 8:30 Eastern time in the morning whether or not we have met the technical definition of a recession. That’s when the Q2 GDP is released. I know that the Atlanta Fed GDP now estimate for Q2 was revised down on June 30th to a negative 2.1%. Q1 numbers for GDP came in negative 1.5%, and then they were revised to negative 1.6%. If the Atlanta Fed GDP is now forecast, which uses about thirteen sub-components that make up GDP if that’s minus 2.1%. If it’s minus anything, we will have met the technical definition of a recession, so we will be in one.

That’s important. If you look back at 2020, we were at a GDP growth of negative 2.3%. Les, what do we anticipate with this? We, as lenders, loan officers, and business owners, make up such a big part of our listing audience. Where are we heading, in your opinion, on rates? I know a lot of volatility and factors are going into that but in a macro sense, where do you think we’re heading?

We’re in a bull market. Fundamentally, there’s a major battle still going on where ultimately, you would think that the secular bull market, which began in the mid-‘80s, has not officially ended yet. We’ve gotten close and had one time, in the early 2000s, when we almost turned and wiped out the secular bull market. Significantly lower rates but it hasn’t happened yet.

This is a big test. We had a rapid rise in interest rate, the fastest rise in mortgage rates that I have ever been familiar with, to increase 300 basis points in 4 months. That’s a lot. Every loan officer out there knows that, and the people that are home looking for a new job on where they’re going to lead production because we need a lot of massive layoffs. They know about that. There are two things that I anticipated in November of 2021 that were going to happen. I announced on your show that we’re going to see higher volatility and mortgages and underperformed treasuries.

It will be a significant widening simply for the very simple reason that the Fed was not going to be buying mortgage-backed securities anymore. If they’re not going to be a big player in mortgage-backed securities, then it’s left to the international and primarily the domestic market in the United States. You cut production in half. There’s adequate domestic interest in owning mortgage-backed securities. Getting to that point meant we had to have a significant adjustment in the market.

 

That’s why spreads widened out significantly, and now mortgages are very attractive as an investment. While they’re attractive as an investment, I’m looking for mortgages to outperform treasuries. I also expect volatility to remain fairly high because of the transitions, the stuff that Jack has already talked about of where the market’s headed.

Interesting, Dave, your opening statement about, “The people that have good leadership are the ones that are going to survive,” the cream of the crop rises to the top not because of the best sales techniques, not because they are the best capital market people in the world. Those are important. It is because of the best leadership gets through leadership. If you’re facing rough waters, who do you want at the helm of whatever vessel you are sailing? If you’re out in a body of water and storms are coming, who do you want to be captain of your ship?

My vote is for Sig Hansen of the Northwestern, which is one of the more noteworthy crab boats on the TV show Deadliest Catch.

I wanted to stress that because you bring so many wonderful parallels. Many Jack-isms are spoken. It’s legendary. I’ll never forget when you were at TCB, and you retained me to help you with some things, and we were having some disagreements. I’m thinking, and you said, “Lykken, if we aren’t robbing, we aren’t racing.” I love that. I’ve hung onto that. A lot of people avoid conflict and I go, “The healthiest organizations have conflict, but it’s healthy conflict.” That goes back to the leadership comment.

I’ve just got to say this quick story. I’m sitting in the office of the CEO of a 36 billion mid-tier bank. The CEO and the president of the bank were there. They asked me, “What makes good leadership?” I asked the CEO, “Do you watch the Deadliest Catch?” He said, “I love it.” I said, “It’s Sig Hansen.” Sig is a very authoritative leader, but on Northwestern, there’s role clarity. Everybody knows what they’re supposed to be doing and when they’re supposed to be doing it.

He always catches a full quota of crab, and despite 40-foot waves on the bearing sea, everybody on that ship knows they’re coming back to the Dutch Harbor alive. When you think about that from a leadership position, it touches on some of the most important aspects of leadership, confidence, clarity, and empathy, and in the mortgage business, even more so because we know it’s a volatile business.

We know volumes go way up and down. Volumes go way back up again. What happens? Workforces expand and contract. You want to be part of an organization where the leadership has a clear plan. They communicate it. They share the success or the challenges that they are experiencing with the plan with their team, and the team believes that the ship is going to come back to Dutch Harbor intact. I want to be working for that organization in a market like this.

People want to be a part of and work for an organization where the leadership has a clear plan. They want an organization that shares its success and challenges with the team. Click To Tweet

We have got some rough seeds. That is a good metaphor for that show, specifically at Sig and his boat, the Northwestern and the fact that you can go out into some of the heaviest seas when you are led by someone with such a successful track record. It’s not always because he’s warm and fuzzy and friendly with everybody in there. You hear some of the banter that goes on, and it’s serious business.

It’s life and death but they bring it back. I love that analogy. You brought that up. I’m glad you raised that up. We’re seeing people move. I’m aware of a $2 billion production group annually moved with no signing bonus and no incentives. The reason is that they’re with a great company but they moved to another company for that very reason.

They knew they were going to be able to catch more loans, survive the rough seas, and be in a culture that guaranteed them what they wanted to be around that replicating success. That’s what’s going to be such a big factor as we come through into Dutch Harbor when we come into the calmer waters. The question back to Les is, when do we see calmer waters?

Those that read regularly may notice that there’s a reoccurring theme overall with the show, and that is you come back to leadership. There’s a reason why Dave always comes back to leadership. Let me get you in from the financial side on why you want good leaders. I’m going to say a fancy thing here in a minute. There’s a principle in option theory about how you price options, and how you price option is essentially displaying the cost to lay off risk.

If you buy an option, you are reducing risk. There’s some price for that. When you are trying to model what the prices should be, they price it off of a normal distribution. That’s where it gets a little fancy. It means that there’s a regular way of looking at how markets perform. They have to apply some type of model so they use a normal distribution for the face of their modeling. You don’t need to understand what that means. It’s normal.

The option writer has a certain amount of saying, “But not everything is normal. It’s also AB normal.” It’s like when young Frankenstein told Igor to get a brain, and he went to get it. He dropped the good one and saw the one next to it that said AB normal. That’s the one he brought to Dr. Frankenstein to put into the monster. In the case of financial modeling, we know that it’s not normal. We know that even though we price it like it’s normal, there’s plenty of abnormality in financial markets in the way they function. The fancy term we say for that is that the markets have fat tails, and you’re allowed to make fun of that.

If we know that the market is not always going to be normal and that there are fat tails that it’s going to get outside of the normal distributions regularly, in the sense of predictably and that it happens a few times a year, there’s more frequency than people think. You need to have people at the helm that understand that there are events that are outside of normal.

If you trust your financial model and everything is a normally defined model, guess what’s going to happen to you? You are going to lose. You need to have leadership that understands when events happen that are outside of what is expected. How are they going to respond? The best example of challenging leadership was what happened with Sully Sullenberger, who was the pilot for the US Airways 320 and the Miracle on the Hudson in 2009.

What happened is that they took off and hit a flock of geese. When that happened, they went, “We’re in trouble.” It’s like, “Hudson, we have a problem.” Because of the great leadership that was piloting at that time, they made the decision they meant to ditch the plane very quickly right where and what was happening. We knew that the ferries were going back and forth there. They also knew that they would be able to control it, relatively speaking, and ditch it there in calm water.

They knew that they could get people rescued very quickly. They knew that they could have it in a spot where they knew they still had somewhat control of the panic situation and yet the flight department or the tower wanted them to go all the way to the Southern tip down to the financial session, take it on upstream and try to land the plane. He knew we wouldn’t make it in time. There are bridges over there but a couple of them are close and they would’ve been ditching near a bridge. It could have been a disaster. He went through all of those things. He piloted to success with no death. In fact, only a couple of people got wet that was out on the tip of the wing. They were unloading it.

It’s another good metaphor for someone who has uniquely equipped the calmness in the leadership that he brought into that moment. If you haven’t seen the movie, watch it. Most of us have. Again, it’s coming down to the leadership issue that’s going on. It’s an understanding. Another thing about that story that wasn’t reported on as much was that he is a glider pilot. He knew exactly the attitude, the angle of attack as they went into the water, and he had that. That’s another piece of the data. It’s a combination of strong leadership along with great information. I want to come back to you, Jack, because, at your last place, everyone knows it’s Texas Capital, and I know you tried to be respectful of that. You did an amazing job of leadership there.

Jack, as we wrap this up, you banked me billions of dollars and watched many mortgage bankers go through different twists and turns in the market. Nothing quite like what we’ve seen here recently, as Les talked about. For those that are reading this, we got their attention when we talked about the Deadliest Catch, Sigs’ success, and Northwestern making it in the Dutch Harbor. Les is talking about Sully. What are the characteristics that you would recommend our readers start developing, honing, and working on to speed up one of the ones that succeed in getting back into Dutch Harbor or landing their plane safely in the Hudson?

If I look at the characteristics that make up a good leader, and there are many of them, there are three that stand out above the others to me. The first one is that you have to be genuine as a leader. You have to have empathy. Your staff’s reality is different from the reality of your leadership team. One of the things that I did, and it was very successful, was I took the time to get to know as many people well on my staff as I could. I used to call it Waltzing Matilda.

To be a good leader, you must be genuine and empathetic. Take the time to get to know as many people as possible on your staff. Click To Tweet

I would make time every week to get up from the desk and walk through the various floors that housed the mortgage finance division at the bank I worked with. I talked to them, “How’re your kids doing? Where are you guys going on vacation?” It’s to genuinely show that you care about them. They’re not just widgets sitting at desks that are moving files from the left side to the right side of their desk so they can go to the left side of the next person.

Remember where exactly where you’re at because I want you to continue with it because it’s such an important part. Les, I was there with him, and we were in a meeting. He got up from the table and interrupted. He looked at his watch and said, “David, it’s time to Waltzing Matilda.” I said, “What?” He goes, “Follow behind me.” I got to watch him, and I’ve watched Jack in many meetings.

Of all the things you enjoyed doing, Jack, there was something that lits you up when you got to walk the floor in Waltzing Matilda by talking and interacting with people. You lit up. It wasn’t a, “I got to go out and talk to my people.” You came alive at that moment. What was the motivating factor there? I watched it. I witnessed it firsthand. What was it that lit you up? It was notable.

First of all, I genuinely like interacting with people, but the driver behind it, I don’t care how smart you are. You can’t do it all. Your success and my success is a product of the team. You have to connect with the people. If you’re going to ask people to run through a brick wall for you, they got to respect you. I knew that we were only going to go as far as the team would take. I was a role player. I’m the guy that sits up the top and I say, “Tack the sailboat to the port harbor and drop the main sail.”

It doesn't matter how smart you are. You can't do it all. Your success is the product of a team. Click To Tweet

I didn’t do the work, so the team is going to take me as far as I’m going to go and not an inch far. I’ve got to have the team believe that I respect them. I respect the job they do and the contribution that they make, and I care about them. That’s what drove me to walk the floors. I did it a couple of times a week, and I’d make sure that if I talk to somebody on Tuesday and I miss somebody, I can get them on Thursday or Friday. I tried to talk to as many people as I could in a most sincere manner and not about business unless they wanted to take it there.

It was something to behold. It came from a genuine place in your heart, and I saw the energy. You always came back more refreshed after that. We’d oftentimes go to lunch after you were done Waltzing Matilda walking on the floor. It gave you life and energy, which goes back to you talking about the Deadliest Catch, specifically Sig and pulling into the harbor. This is a time that we are in very rough water, and we’re going to see it for the rest of the year. I quite frankly think there are things yet to come that are going to be so far out of the ordinary and statistical anomalies that we could never have anticipated.

Thank you for that segue because one of the things that I wanted to get into this show is a volatile market, with origination volume down 40%. It reminds me of a line from the movie Mary Poppins. Dick Van Dyke was playing the role of Bert. It was at the beginning of Mary Poppins, and he was a one-man band. He had the drum and cymbals on the knees and all that.

He is making something that sounds like music, and then the wind blows in from the North. The character Bert says, “What’s about to happen has all happened before.” That’s relevant to what we’re going through now because we’ve seen the market contract hard. This is no different from a number of times for many years when we’ve had challenging circumstances that we had to battle through as an industry in terms of origination volume and cost to originate.

We’re in the middle of that now. That goes back to my second thing that a leader has to be able to get control of and command up is consistency or stability. We’ve all worked for an organization that seemed to have what I call agenda paralysis. That is, every six months changing how you’re approaching the market. It even happens to managers and leaders.

I used to say I’ve worked for people with an agenda in every pocket, their pants pocket and jacket pocket. Depending on which way the wind was blowing, whether or not it was market wins or organizational or political wins, they would pull out an agenda that aligned with that. Whether or not it’s at an organizational or a leadership level, you have to be stable and consistent. You’ve got to have your game plan, and you execute against that game plan. You can’t be changing with every little change in the wind.

 

That’s well said. You both have brought out some great content here in this show, and I’m grateful for both of you taking time out of your Independence Day celebration, the 4th of July, to share great pearls here for our audience. We could go on and on, but out of respect for your holiday and our audience, we’ll wrap it up with that. That’s pretty well done. Parting words, Les, or thoughts as we go to the exit?

I think we have helped people understand that vision leadership is critical for understanding markets and to guide yourself through the rough waters up markets. I wanted to leave with this final thought. It’s about Walt Disney. He died in December of 1966 and in late 1965, he announced the plans to develop Disney World. One person made a comment, “He even imagined how fabulous this is.” Someone responded, “He already saw this whole thing.” That’s vision. He didn’t have to see it. He knew exactly what it was going to be. That’s great leadership. Great leadership sees when nobody else sees.

We’re throwing a lot of names out here and things that I recommend to everyone, and I’ve said this on several episodes. It’s worth repeating. Get the book American Icon written by Bryce Hoffman. It documents what Alan Mullaly did at Ford. In the earlier parts of the book, it talks about what leadership he brought to Boeing to turn it around. There are many great stories. I’m recommending it to all my clients to read it and all the management teams I’m consulting and coaching.

Read this book. It’s really good. One of my clients said, “David, why am I reading this? What are the things I should be pulling out of it?” Look for the principles by which he led one of the largest organizations in the world and navigated them through some of the roughest seas like Sig does every week on the Deadliest Catch.

It’s been a joy to get together with you on this holiday. Jack and Les, thank you so much for joining me on this graciously giving of your time on this holiday. I appreciate you both very much. Readers, we’re so grateful to have you here. That wraps it up. We want to stay a special thank you to our sponsors, Finastra, FormFree, Lender Toolkit, Snapdocs, Total Expert, SimpleNexus, as well as the MBA, Mortgage Bankers Association of America, Lenders One, The Mortgage Collaborative, SuccessKit, Knowledge Coop, Mobility MMI, Modex, Mortgage Advisory Tools, and DW Consulting. Thank you so much. Have a great week, everybody, and enjoy your 4th of July. I’m looking forward to having you back here next time.

 

Important Links

• Finastra Fusion Mortgagebot Solution
• FormFree
• Lender Toolkit
• Snapdocs
• Total Expert
• Josh Lehr – Past Episode
• SimpleNexus
• Shane Westra and Jay Arneja – Past Episode
• Mortgage Bankers Association of America
• Lenders One
• Mortgage Collaborative
• SuccessKit
• Knowledge Coop
• Mobility MMI
• Modex
• Mortgage Advisory Tools
• DW Consulting
• SPCP.com
• MBA.org/homeforall
• Mortgage Action Alliance App
• Freedom
• Transformational Mortgage Solutions
• TMSpotlight.com
• Supreme Lending
• TheDailyShot.com
• American Icon