Lykken on Lending

Lenders One was able to successfully partner with Walmart so that they can open stores inside Walmart. This relationship has led to many different value propositions for Lenders One when it comes to reaching out to an even wider audience. Now together with Walmart, they are educating potential homebuyers on how to buy a home. Join David Lykken as he talks to the President of Lenders One® Cooperative, Justin Demola about the Walmart partnership. Learn how the partnership came to be and their relationship with Walmart. Find out how they are planning to grow as they continue to open up in more locations.

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Lenders One Opens Branded Mortgage Branch Locations At Select Walmart Stores In Florida And New Jersey

I am excited to have the President of Lenders One Coop joining us, Justin Demola. I’ve known Justin before he was there. He was one of the members and had the privilege of working with him back then. I was a big supporter of his joining or becoming the president of Lenders One. I’m glad he got the position. Justin, it’s so good to have you here with us.

David, how are you? Thank you for welcoming me and for all the kind words, as usual.

You do a great job. Also joining me as my co-host is Marc Helm. He will be joining me in the interview. Mark, thank you for joining.

I’m glad to be here, David. Thank you.

Justin, you’re a 30-year veteran of the mortgage industry. Mark is 45. I’m starting my 50th year in this industry. We’re at some interesting times but you’ve got some exciting news that we’re going to be talking about for your members. I want to get into this, but before we do, we always give the opportunity to our audience who may not know you or Lenders One to give a little background on yourself. How did you get to where you’re at? Also, a little bit of what is Lenders One for those that do not know.

 

 

That’s a packed question. We could take up the whole time slot right there. I was one of the ones that were born into this industry. My family was in the industry. It was high school breaks, days off, and summers, “You’re going to come work here and play here and understand the business and learn the business.”

I did not know that part of your background.

That continued through college as well. I didn’t have much of a social life to a degree. It was great.

Mortgage bankers struggle with their social life.

The irony of this is that I was one of the ones that were probably targeted by the mortgage industry. Leaving college, I was recruited by all the Wall Street terms both on the finance side, as well as the marketing side, which is interesting. I had a Marketing minor. My family said, “Give us a few months. Come work here for a few more months before you decide anything.”

It’s a slippery slope. A few months turn into years.

I weighed the options of going to Wall Street, working 120 hours a week and getting kicked out to get my MBA for two years versus all the money that I was making in the mortgage business. Almost 30 years later, I’m still here.

We’re glad you’re here.

I’ve done everything in the industry, which is pretty cool. As you mentioned, I was a member. I own a company for a while then I merged into another company, consulted with banks and credit unions and IMVs as well throughout the process. I was a member of Lenders One. I loved the culture of the organization and what it had to offer its members. I was tired of being on the origination side of the business, dealing with all the headaches and heartache in times like now, as well as the good times. The cycles were getting to me and figured that this was a great opportunity to jump on the side of the fence here and become not so day-to-day or transactional, which has allowed me to help our members.

Lenders One is the oldest coop in the nation for the mortgage industry if I recall correctly.

It is. It’s funny when you look at Lenders One and how it was formed with the Stern family. The family was in the carpet cooperative business. If you ever see stores Carpet One, there’s one about 2 miles from my house. It was a carpet-buying cooperative with local stores.

That’s a little history I didn’t know either. I’ve known the Stern Brothers forever.

They were independently owned but they’re all branded Carpet One. Fast forward to 2022 and Lenders One, when we start talking about our Walmart initiative, branding them Lenders One. It’s almost coming full circle.

You let the cat out of the back because that’s why we have you here talking about it. I want to give a shout-out to Tricia Migliazzo who is an executive there with you. She’s one of your right-hand people. I love Trish. She’s a dearest friend, like a sister from another mister. She’s the one that said, “You got to get Justin on.” She ran into me at a conference. The Walmart thing is going well.

Lenders One consists of roughly 250 or so members. Unfortunately, we are losing a few members now because of M&A as well in our business. We represent 17%-ish of the US mortgage market on the origination side of the business. Our smallest member does under $500 million. Our largest member in the height of the market is $60 billion. Our total aggregate is between $775 billion and $800 billion in 2021. It will be quite lower in 2022 but our primary mission is to help our members save money, have better execution on their secondary transactions, network, give them some education, and help them and give them a resource to go to when times are tough like now.

That’s good and I’m proud to say that we are also vendor members of Lenders One. It’s an honor. Justin, you have a new business relationship with Walmart. Tell us about it.

It’s interesting when we look back at what happened and how it happened. Roughly almost two years ago now, a third party reached out to us regarding a request for information that Walmart had for mortgage entities entering their space and taking some space from them. We went through that process. At the time, we’re all doing record origination volume for our members. We didn’t have any room, bandwidth or capacity for any additional relationships such as this.

We went through it and luckily, we came out ahead and Walmart shows us this relationship. You fast forward to now as the origination volumes are noticeably lower, our members are going, “This is another opportunity to fill the top of our sales level.” Realistically, when we look at the bare-bones relationship in its purest form, it’s essentially landlord-type.

Compared to before, origination volumes are noticeably lower. Share on X

Anyone who has been in a Walmart store sees these things. When you come through the front doors, it’s either right or left, but right along that opening front wall of the building, they have a space where they lease out. It’s RESPA compliant. It’s a pure landlord-type situation, but there is a sense that it’s in the store, so they are very careful in who they select.

Walmart had some requirements. Adding to your RESPA piece, we’ve done a lot of regulatory. We had third-party attorneys looking at the regulatory environment on this, as well as the branch suitability for licensing on a state and local level, as well as the Federal level for HUD, etc. We went through all the legal vetting for the process because of the purest relationship that is landlord and tenant, as well as a small licensing agreement.

One of the things that Walmart asked of us was consistent branding. They wanted a consumer that walks into a store in New Jersey to have a similar experience as a consumer walking to a store in other parts of the country. They wanted consistent branding. They liked that we had the diversification of many different members and strategies, as well as the sheer number of branches and loan officers in the cooperative. It gave them a comfort level that we were going to be here for the long term. Alpha Source is a great counterparty for anyone as well.

 

Coming into the relationship, there were a lot of things they liked. One of them is that they wanted consistent branding. They also wanted us, and this is where it’s important in terms of the strategy for our members. They focused on consumer education, credit education, and home-buying education. They wanted to help educate their customers about the home-buying process, and the credit process in general.

We were able to offer that. We’ve teamed up with FinLocker on this project. FinLocker will be the consumer education piece of this, which will allow our members to help their Walmart customers understand their credit and home ownership. When they’re ready, to be able to look at their finances and submit the application to the individual member that has leased the space from us.

One of the value props that Walmart is also looking for their customers is coming back into the store. It’s repeat customers, repeat sales, and how we can help them create value for their customers, as well as their employees to have them come back into the stores. If they’re going to go for a gallon of milk, are they going to go to the local gas station or come to a Walmart to be able to get it? We’ve solved that through some consumer promotions to get people in the store, as well as getting them in the store once they’re in the process. Even post-closing, Walmart has payment services that they can come and make their payments within the Walmart store.

That’s a real advantage. Marc, it’s good to have you join us here. I’ll toss the mic to you.

Justin, I vaguely remember that Walmart tried some modification of an arrangement like this about twenty years ago. It did not have the structure that you’re talking about. It was tried in some Walmart stores and whatnot. It was under the same concept. One of the things they probably got burnt on was a lack of consistency in the branding and all that. It was a regional thing, so I salute you for what you put together. It sounds like a great program, but the key to the program is the participation of your membership, what kind of members and what kind of interests they take in what you’re doing. What so far has been the appeal for your members and their willingness to participate in the vendor venture?

When we first started the project, the economics were a little bit richer than we thought they were going to be. That was a little bit of a deterrent combined with the fact that there was an overwhelming origination volume. As we’ve opened these three stores, we were able to get the costs down to about 40%. The initial startup cost, the build-out costs, and the monthly costs are nominal compared to the number of top-of-funnel sales leads that we’re going to get in.

Now that we’ve opened these three stores, we’re seeing foot traffic come through. We’re also seeing different value props that we weren’t necessarily expecting. We knew we were going to hit a new different demographic of consumers, which would help with the potential state-level CRA requirements, affordable housing, and helping the community in which the members are located.

 

Those were the typical value props, top funnel leads, the ability to see a lot of consumers, affordable housing and CRA. Some of the other things that we’re seeing are, guess who shops at Walmart? Realtors. Now realtors want to a bite at this apple as well. They’re building relationships with the members that are in these local stores as well to see how they can potentially do some joint marketing, etc.

That’s one of the things that we weren’t expecting. We’ve been in discussions with a federally insured depository that is deficient in some CRA markets. They’re trying to figure out whether there available locations in these potential markets and how can we work together to be able to get them the volume that they need so we can help them with their CRA examinations and audits.

That sounds great. I would assume that vendor relationships could span everything from homeowner warranties, and termite inspectors to God knows what. It would bring all kinds of people into the play there and that’s the thing. Looking at what you’ve done, I feel like one of the greatest services you do, if you look at the footprint of Walmart stores in this country, you’re going to be in so many places where there’s not any choice of mortgage footprint there at all.

Sometimes no. I go through Walmart stores over here at our home in Alabama. There’s not a lender operating in that town. Maybe the bank, but no mortgage lender. There’s no mortgage company like you traditionally do. That’s going to be a service to the community. I agree 100% with you on the CRA aspect of it. It’s certainly a different demographic.

One of the things is we allow the members to choose their locations, but we give them some guidance. You’re right, a Walmart that’s the center of the community where people are going for their food, shopping, and their everyday activities or getting there multiple times a month is going to be more successful than a Walmart potentially in Miami. When you look at it, a site selection will be important. We have the ability to go into any Walmart location that does not have a current financial institution in it and has a vacancy. As you can imagine, the list of available locations is rather large. We have the opportunity to get into as many as we can get into.

A Walmart that's at the center of a community is going to be more successful than a Walmart in Miami. Share on X

The opportunity seems obvious in the service when you start looking at it. An opportunity to pick up new markets, to pick up CRA, and all the things you’ve already talked about. What are some of the lender members within the Lenders One coop telling you that they’re realizing benefits already? I know you just started this. What are you selling them or telling them they should realize as benefits?

The first and foremost thing is they’re going to be only as good as the salespeople and loan officers that they put in those locations. It’s hard for us to make any type of guarantee in terms of focus. We’re going to see some that are going to outperform and some that are going to underperform. Our goal is to homogenize the process and have them working together so we can get as much pull-through and success for the program as possible.

When we talk to them, it’s just a sheer numbers game. If they’re going to do direct mail, this is a lot less expensive than direct mail. Direct mail is expensive. You have to do it multiple times. When we look at the average Walmart store, you’re looking at 2.5 million individual transactions on an annualized basis. You can do the math on how many customers that is and what that would cost you in direct mail.

 

What I will tell you is the economic outlay on this is a fraction of what direct mail would be with the face-to-face component of it, as well as a Walmart consumer. When I look at it for our members, the goal is to close but ultimately, how do they fill the top of their sales funnel so they can put them into their CRM and they can market them on a regular basis?

We know that our customers may not be mortgage ready now, but we think that 6 or 12 months down the road, the numbers are going to substantially improve as people are getting the mindset to think about buying a home and working with the loan officers. That’s the value that we’re putting there. Again, if you’re looking at any branch, it’s a plug-and-play process. We do it all. We project manage it. We build it out.

Basically, it’s bring your computers, have a grand opening, get the loan officers there, and we do all the rest. There is a typical brick-and-mortar type of amenity. We know what the industry is doing right now, so people are going to be trying to pull back on some of these. Even then, this is a relatively inexpensive way to fill the top of your funnels and get where people are. Ultimately, you want to get where potential borrowers are. I don’t think there’s a better opportunity in the country right now.

Especially when you look at the CRA components, some of the market opportunities are going there, but it’s very interesting.

This next question might be somewhat redundant. I wanted you to talk about the unique characteristics of the customer base that you would see as an opportunity. We’ve done that to some degree and you could add to it. I got a couple of add-on questions for this session. It might be good for our audience if you got some you can talk about.

What kinds of benefits can be added to the program you’re doing that maybe we haven’t heard of or thought about that would be RESPA compliant that could help a customer out? Number two, is there a drive with the Lenders One members to hire and train local loan officers to fit this program to reach into the communities they live in themselves?

For example, in rural Alabama, it’s a lot easier to sell a termite policy to somebody that’s in your town than having somebody drive in from Huntsville, Alabama to Decatur, Alabama to sell it because they don’t live in that community. That’s a long-winded question but if you can talk about that a bit, I’d appreciate it.

We’ll start with the second half of that question. We encourage our members to choose locations where they have appropriate staffing because everyone wants to do business with people that they like and that are similar to them. We’re also telling our members not to wear suits, just polo shorts and be Walmart customers as much as they can to fit in. Don’t be intimidating to approach. That’s one thing.

Everyone wants to do business with people that they like and are similar to. Share on X

A side note is, that there are a lot of recruiting opportunities here as well. Loan officers are looking for the ability to get in front of potential borrowers. This will help in recruiting, especially in areas where they may not normally be. You’re 100% right, that’s what we’re trying to do. We’re not telling a New Jersey lender or a Texas lender to go open something in Utah. That’s not the plan now unless they have such success and they’re going to recruit and fill it and staff it for that branch.

That’s the second half of your question. The first half is when we’re starting this, we’ve decided to take it slow. We have the ability to offer other types of financing, whether it’s student loans, auto loans, personal loans or things like that. We just want to start with mortgages on day one. That’s number one. As we see the success of the program, we can then go into other types of ancillary home ownership services to sell to homeowners or home buyers.

Ultimately, when you look at RESPA, it says you can get a borrower or anything because it’s the borrower. Depending on how it works. We’ll be RESPA-compliant, that’s the most important thing. We’re very conservative as an organization, especially being publicly traded. We have a lot of eyes on us at all times.

We are very conservative. We will do what we can within the scope of the law. The most important thing is that we want to create value for our members. We want to create value for potential homeowners and home buyers at Walmart in any way we can. Whatever product and/or service we can offer to these people, we will do that as long as there’s a need and we can do it better than someone else.

When you look at the in-store branch’s impact on the community, what are you anticipating it to be?

We are the pilot. We want to help the people in their homes. American Dream is home ownership. That is our goal. We will count the number and track the number of families that we put in homes that may or may not have been in the home-buying mindset. That’s our member’s mission, to close as many transactions as possible for people in homes that make sense for them, and that they can afford, maintain and sustain over the long term.

Justin, a question. My whole career has been a major part of customer service in the mortgage industry. I’ve done a lot of consulting on that. David will tell you my background, and psychology has played into that. I’m going to ask a question here that maybe some people wouldn’t think about. When you set something up like this, you’re dealing with a different culture and basically what the mortgage industry has dealt with for decades. The question I would have is, do you have any plans to work with your members once you get enough size that it makes sense to mystery shop these locations and make sure the culture is coming through that you want to put into these stores for the participants in that area?

I think that could be very important to direct track of stores and whatnot. I tie that in because we’re interested in knowing about where your first locations are this fall and areas as much as you can share. I’m fascinated with what you’re doing. This is going to be one of the biggest things in our mortgage industry. I salute you for your efforts. I know it took a lot of effort to get this done, especially with a major corporation.

I love the enthusiasm. Thank you. Ultimately, this is going to morph into what it’s going to morph into. We want it to be successful. The bigger it gets, the more controls and consistency we’re going to want throughout the organization and the locations. We will have the ability to mystery shop and survey because that’s important to us. When we get to scale, we’ll know who’s performing the way we want them to perform and those who are not.

We’re not tracking a lot of data points in terms of touches but we’re tracking enough that we can see what the ratio is. We can see what the number of closing are, etc., and then we’ll probably go back and figure it out. We got to be careful with data transfer because we can’t survey customers that aren’t our customers for privacy.

There are things that we’re going to have to do and work on together. In terms of mystery shopping, it’s not too hard to send someone into a location and say, “Can you help me? Can you rate this?” and see what the experience is. However, it is subjective to a degree. It’s not like I can call up and say, “What rate could I have today?”

For those people who do the rate tables, whether it’s bank rate or whatever. You submit rates and your advertising rates, you get mystery shoppers and someone says, “I can give you 8% today but wait, you advertise 6%?” It becomes a little subjective. You got to be careful on mystery shopping when you don’t have data or metrics to compare to.

I’m looking forward to you coming back a number of months down the road and giving us a report on this. It’s going to be exciting. That’s going to be in your wheelhouse to tell you when you’re ready because now you’re going to have some hurdles to do. I’m excited about it. It’s one of the most important things that I’ve seen happening in the industry in many decades. I salute you for your effort. It does take a lot more effort than people think it does. I’m hyped up about this. You can probably tell.

I love the enthusiasm. Thank you for the kind words. For me, it was the win that we were able to get this across the finish line between legal, compliance, engineering, building, and all the moving parts of the two organizations. Getting them through the process and across the finish line, it’s a great win. We’ve had a few good wins in 2022. We started our credit reporting agency. We also launched loan automation. We have three big wins, setting us up for the future, which is exciting. I’m happy to get things across the finish line and make them successful as we go. Now we have to find some more stuff to create and build.

What is the process to participate in this venture? What outlook do you see moving forward?

The process is pretty simple. Talk to your salesperson and your salesperson will connect you with our project manager internally. Look at the available locations that you’re looking for, what counties you’re looking for, and see what’s available, then you go for a site visit. We have to present to Walmart’s credit committee to make sure that the site is available, that we can put a space in there, and that there’s no one else that they’re talking to. We get approval. You get the legal agreements and building permits done, and start to build out.

 

It’s a pretty straightforward process. We’ve streamlined it. We have the right people in place now to make sure that we can get through very quickly probably within 90 days, depending on the time of year. I can’t do anything in a Walmart after the first week of January 2023 for the holiday season. There are things that are dependent upon. We get through them and go from there. It’s pretty easy to get going.

What do you anticipate will be the outlook as far as the number of stores you’re hoping to open in the first year or the type of volume that you anticipate coming in front of this? Any projections you could share with us?

We’re pretty vague on purpose with this. We are in pilot.

Where are those three locations?

We have two in New Jersey and one in Florida. There are high expectations to open a lot of locations. Our members now have the opportunity to go sit in an office for a day with a live store and see what traffic comes through and what the interactions are. We’re still finding our way now. It’s like, “We’re here. What do we do now?” In the first location, we had four applications in the first week.

There are a lot of high expectations when you open in a lot of locations so it will take time to find your way. Share on X

That’s encouraging.

We’ll leave it at that. I don’t know if they’ve closed, but I do know they were credit qualified and they have properties. That was roughly 5 or 6 weeks ago. We’ll see what the metrics turn out to be. I think the sample size is way too small now. We have a lot of interest. I’ll have calls with members over the coming weeks to discuss with them open locations, what it looks like, what it feels like, and how we can get them into locations. I have people that are calling us and want to talk about it as well. It’s big, small, and all different shapes and sizes. It’s a fun conversation for me now.

What is the term of the lease? Is the lease in the Lenders One’s name or is it in the lender’s or a partnership? It’s hard to get a little bit into the weeds.

You’re getting in the weeds.

That’s the consultant coming out of me. I got to get details.

We have a master lease with Walmart, and then we do a sublease with our members. That’s the way it works, sublease and licensing.

If they want to learn more, first of all, become members of Lenders One, but other than the obvious, what do they need to do to get to participate? What are the steps?

If they’re current members, reach out to your regional director. They will connect you with either myself or our project manager to discuss the program. If you are a prospective member, reach out to Tricia Migliazzo or me. We can connect you with your local regional director and start the process of the membership conversation.

This is excellent. As Marc said, this is a very exciting opportunity for anyone who is looking to expand their production operation. I’m intrigued with the CRA component, which Marc talked about because that is something that has crept into our industry as independent mortgage bankers. We got to pay attention to that CRA thing. This presents some opportunities for that. Justin, thanks so much for being here with us. I appreciate it.

I enjoyed it, Justin. Thank you.

Thank you, both. I truly appreciate the opportunity as always.

We have as our guest, Justin Demola, who is the Lenders One Cooperative President and the one who has pulled off an exciting opportunity for lender members of the coop, Lenders One. Justin, thank you. Have a great week and talk to you soon.

Thanks.

 

Important Links

• Lenders One Coop
• Carpet One
• Tricia Migliazzo
• HUD
• Alpha Source
• FinLocker
• www.Linkedin.com/in/justin-demola-mortgage/

 

About Justin Demola

As president of Lenders One® Cooperative, Justin leads its day-to-day operations and strategic execution. With nearly 30 years of the mortgage, consulting, and business development experience, he brings extensive leadership know-how to the role. He joined the organization in 2019 as Vice President, Sales and most recently served as Managing Director.

Before that, Justin served in prominent positions at several independent mortgage banks, including Chief Operating Officer of MLB Residential Lending, LLC, and President of The Hills Mortgage and Finance Company, LLC. He is a licensed mortgage loan originator and Certified Mortgage Banker (CMB). In addition to his responsibilities at Lenders One, Justin serves as a resident CMB instructor for the Mortgage Bankers Association (MBA)’s CMB Final Prep Course, where he shares his insight and support with current students. Justin serves on the Mortgage Bankers Association of New Jersey Board of Directors and is a member of the MBA MORPAC Committee.

About Lenders One Cooperative:
Established in 2000, Lenders One Cooperative is a national alliance of 250+ mortgage bankers and a network of innovative proprietary solutions, technology, and 90+ solutions providers and capital markets providers, committed to propelling profitability, efficiency, and connections for its members. Lenders One is dedicated to helping independent mortgage bankers, banks, and credit unions compete in the market, improve their profitability and reduce loan manufacturing costs. Participants on the Lenders One platform originated greater than $700 billion of mortgages during 2021, collectively ranking as the largest retail mortgage entity in the U.S. Lenders One is managed by a subsidiary of Altisource Portfolio Solutions S.A. Visit www.lendersone.com for learn more.