February 14, 2019
Presented by Joe Garrett and Mike McAuley, principals with Garrett, McAuley & Co. | www.GarrettMcAuley.com | Joe Garrett 510-469-8633 | Mike McAuley 281-250-2536
With their permission, we’ve shared their insights (and our thoughts, as well, in red!!).
Now that we’re kicking off the new year, it’s a good time to set goals and establish priorities. Here are 10 things we hope you’re already doing, but if not, this can be a good reminder for the rest of the year.
1. Think about the unthinkable.
As bad as things might be, they can get worse. Have a financial plan that assumes volume and margins shrink another 20%. Let that plan dictate the maximum you can spend and still not lose money.
How can Riivos help you think about the unthinkable? With Riivos, run stress testing scenarios to test extremes so you can make sound financial decisions under any conditions.
2. Make a strategic decision about your company’s future.
You can: (a) sell your company, (b) wind it down, or (c) improve it. Almost all companies can be fixed and can significantly increase profitability, but don’t let a decision be thrust on you. Be proactive in making a decision about your future. We’ve seen too many owners wait too long, run out of cash, and then be forced into a bad deal out of sheer desperation.
With Riivos, run strategic planning to optimize company performance to help you make decisions about the future.
3. Think very carefully before deciding to sell.
You’re probably going to be very disappointed by the price you get, and if you think you’ll get back in the business someday in the future, that almost never happens. Sell if you absolutely have to, but really think it through before you make that decision.
4. Sunset overrides.
If you pay overrides for bringing in production people, don’t pay them in perpetuity. Phase them out over two years max.
We also see companies paying basis points to non-production people, something that almost never makes sense. Bonuses to non-production people can be tied to their performance or company profits, but there’s no reason they should get paid bonuses tied to volume.
5. Go after profitable borrowers.
If you go after borrowers with an 800 FICO and a 40% down payment, they are most likely going to go wherever they can get the best price. Seek out borrowers who need your help and who might be a little less price sensitive.
6. Maximize your liquidity.
Call us if you want to have some good liquidity ratios to stick to, but you absolutely must maintain high liquidity levels to protect against further shocks. High liquidity also means that you’ll be able to take advantage of opportunities in 2019 where companies are going out of business or teams of LOs are looking to leave.
Most importantly, refine your cash flow projections. You need to know exactly what your cash position will be in seven, fourteen, twenty-one and twenty-eight days. Update your projections every day, and every day test how accurate your projections have been.
With Riivos, immediately see the ripple effects of any changes on your liquidity.
7. Don’t be afraid to sell your servicing.
If you need liquidity, sell your servicing. If you believe you need to be a servicer, keep a nominal amount and sell the rest. You can rebuild your servicing portfolio when things get better.
If you want to keep your servicing and you use a subservicer, it’s time to look at what you’re paying them. Run the numbers and see what percentage of your servicing revenue is going to your subservicer. It just might shock you, and if it does, have a conversation with your subservicer about this. Look for ways to lower your cost.
With Riivos, immediately see the P&L and cash impact of increasing or decreasing your servicing portfolio.
8. Cap LO commissions.
Top performers are putting total dollar caps not only on jumbo commissions but also on high-balance conforming and Government loans. If you want to make it easier for your sales team to swallow, then also ofer a minimum dollar commission on all loans.
9. Commit to better LO performance metrics.
It’s not just about the volume each LO originates or how much revenue she generates. You should also look at how often they need pricing concessions. How many rushes do they require? Do they generate too many marginally-profitable loans, such as jumbos or housing bond loans? We have many clients who have over a dozen LO metrics they track, and they rank LOs from first to worst. If you have this data for each of your Ten Things to Do in 2019 Memo to the CEO By Joe Garrett and Mike McAuley N LOs, then you can have the tough conversations about improving LO profitability to the company.
With Riivos, create KPIs that are easily tracked and measured against company or industry benchmarks.
10. No sacred cows.
Be willing to fire friends and family. If things get ugly, be loyal to your company and not any specific individuals. If someone’s not contributing enough, it doesn’t matter if it’s your mom or your best friend. Dump them. Your friends might hate you, but your mom will still love you.