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High profile.

This is a modern age story of a mortgage company that grew and grew and grew, out of inspiration, hard work, and mind-bending speed in delivering loans into the secondary market. It's also a story of a high-profile CEO and a different approach to mortgage banking.

Hers is the Jaguar. His is the forest green Miata. She's European born. He's from Blue Grass country.

She's the boss and "visionary." He's the president and chief operations guy. They're both relatively young. This is a modern mortgage company.

The organizational chart looks like a dartboard--the icon of a new generation of managers. The discredited corporate pyramid of corporate boardrooms past is dead and buried around this company. These are entrepreneurs. Baby boomer entrepreneurs. Married ones.

Most married people have small disagreements over where they first met or the price they paid for their first car or the right card to play at bridge. Not many spend much time differing over where interest rates were in January 1986. But this is not your typical marriage. This is a mortgage banking marriage and a business partnership as well. And these are not your typical execs.

He went to Woodstock. She marched for human rights. It makes for a very different kind of executive team.

No this is not an episode from "thirty-something." It's not even something as trendy as a bi-coastal marriage. This is Lancaster, Pennsylvania--home to great pretzels and dairy cows.

They can actually walk to work from their house in Lancaster, if they want the exercise. The feel of the town is prosperous, restored, historic, with Amish buggies still tooling around amidst the Miatas and the Jags.

The local banks are still controlled by descendants of the ruling Lancaster families. The conservative hold on local money made it very tough to land any kind of warehouse money for a startup mortgage company back in 1985-1986. To this day, this mortgage company--seven years old--operates on a scant $15 million warehouse line they were lucky to get back in 1987, when their net worth was $75,000.

But necessity has proven the mother of invention for this mortgage banking company--Pinnacle Mortgage Investment Corporation. But that's not all this company had going for it. Timing helped a lot.

It was on the eve of the huge refi boom of the last decade, in January 1986, that Sandra Stevens-Miller was talked into moving her just-founded secondary marketing trading group into the retail mortgage business. Whole loan trading had dropped off dramatically and to keep her business alive, she had to augment income by also entering retail production--but she had to be shoved. By doing so, she was taking on what she recalls as 50 established mortgage lenders in the market already. But she is nothing if not determined and persistent.

She recalls starting retail production with two loan officers--cousins--one of whom was jut out of college with no experience as loan officers. She remembers they were "pure rookies that I had to train, couldn't even spell mortgage." A startup company with no track record at the time had no hope of attracting seasoned talent, especially in Lancaster. With a total staff of eight, she got an advertising campaign together and hit the street.

Her husband and partner, Al Miller, joined Pinnacle Mortgage Investment Corp. on March 2, 1986. By then, he had built a successful career of his own with several major mortgage companies. But an opportunity to build and run a bank-owned mortgage company had blown up mid-course, so he decided to join the tiny new company. Together, they pooled their complementary strengths from separate careers in different parts of the business--he production and she secondary marketing.

As a result, seven years later, they have built a privately-owned mortgage banking company that this year is expected to close roughly $800 million in home loans. Thirty-percent of their stock is owned by the Central Pennsylvania Savings Association, the thrift that gave them their warehouse line back in 1987. But by December of this year, Pinnacle plans to have bought back that 30 percent equity position held by the thrift. It will then turn around and sell stock in a private offering to provide capital for further growth and expansion. Their corporation--The Pinnacle Group--also owns a title company and an appraisal company.

From those first eight employees, Pinnacle has grown to 150 in seven years time. This has all been done during some good times and bad times for mortgage lending. The growth has been financed all on the back of the market value of servicing. They have sold all their servicing the date, but a near term goal is to start retaining some of their own servicing.

With four retail branches and a branch in the headquarters, Pinnacle Mortgage will do close to $400 million in retail production this year. The remainder of its production comes from a wholesale operation that fairly recently went national. Roughly 90 percent of their production is sold to Freddie Mac. The key to their growth has been the speed with which they can deliver securities to the secondary market and a new age sensitivity to their employees that has groomed well-trained workers who feel a collective pride of ownership in the company's work product and success.

These two executives--Sandra Stevens-Miller and Al Miller--represent a new generation of mortgage banking management, but the opportunity they seized to grow a company from scratch may have been a window of opportunity that has since been closed. Stevens-Miller says that the new stiff network requirements of the agencies and the state licensing requirements for mortgage companies were something they didn't have to contend with at a critical early juncture in their venture.

But having an eye for an opportunity and the vision and determination to make things happen are also part of the formula that has made Stevens-Miller a successful mortgage entrepreneur in a business that, at the top, has long been the exclusive preserve of males. Her company's story and her role in building it has earned her a shot at being named Inc. magazine's Entrepreneur of the Year for 1992. Earlier this year she was named Central Pennsylvania Entrepreneur of the Year in the preliminary round toward naming the national winner whose face will be on Inc. magazine's cover.

The career path of both Millers provides a window on what it was like rising through the business at a time when it was changing dramatically.

In looking back over the 1970s and 1980s, Stevens-Miller says "As a woman, I found I had to move every two or three years to have upward mobility, whereas |Al~ was able to progress" through long stints with the same companies.

Stevens-Miller has a well-honed sense of style and a unique management philosophy that set her apart from your typical mortgage executive. Not many mortgage banking CEOs design the wedding dress of their publicity agents or corporate uniforms with logo-adorned blazers. Not many give working internships in their companies for four months to six Polish graduate students studying computers and economics. Not many--with Lomas being a stellar exception--establish day care centers to accommodate the many young mothers working in the business. Her company won a grant from the state for training employees to further nurture their careers. She measures where she was in her career by the ages of her two children. This is a softer touch than you typically find in the average mortgage boardroom.

In the early 1970s, Stevens-Miller first entered the business by getting into a loan officer training program with 12 others to learn the retail production side of the business. She recalls there was a 12 percent usury law on the books in Wisconsin and that forced the inspiration of some new creative loan products. At the time, she was with First Savings of Wisconsin, in Milwaukee. She says it was a time when condominium financing was really taking off and her savings bank was out doing road shows across the country seeking out that production. "It was a savings bank, but we were set up to operate like a mortgage bank. Rather than wait for the customer to come to us, we were out selling ourselves as though we were a retail business."

From this job, she got involved with all types of production, not just residential. She was able to be involved with condominium conversion financing, and commercial property lending. "The exposure was terrific. I got involved in all types of lending." But by then, she had decided that she really wanted to be in the secondary marketing end of things--where the real action was. She decided to come back East to see if she could find a way to get into this side of the business.

She took a job with a savings bank out of Pittsburgh opening up production offices for them. But that didn't get her any closer to secondary marketing. "But it really was a man's ballgame, as far as secondary marketing, because they saw that as where the powerful decisions were made regarding million dollar blocks of loans. And there was still that stigma," she says. But in spite of that, she decided to go to New York and go into the brokerage business, where she learned secondary marketing. Then she left New York and for three years "started doing some brokerage myself in the secondary market working through the Pennsylvania Housing Finance Association" and she also did some financial brokerage of condominium conversion loans.

But getting tired of working on her own, Stevens-Miller jumped at the chance to join Commonwealth Mortgage Assurance Corp (CMAC) as the national director of secondary marketing in Philadelphia. She managed traders from seven CMAC offices all across the country. Then by the mid-1980s there were signs of problems in the MI industry and in the oil-belt and Stevens-Miller decided it was a good time to start her own mortgage company. She said, "Even though the rest of the financial services industry looked like it was ready to collapse, I could see there was opportunity if you were willing to go where the majors wouldn't. As an entrepreneur, you have to go where the others won't and keep your overhead low, which is one of the reasons Lancaster was a good location for a startup. We went after B-markets, and by B-market I don't mean monetarily. I mean in population size."

So she returned to Lancaster Pennsylvania--her adopted American home town--to create her own company--Pinnacle Investment Corp. in June 1985. Lots of local merchants and landlords who knew her extended her a 90-day grace period to pay her bills, so she had no cash outlays for the first three months of operations. "All I had to be concerned about was making payroll and everybody else stood behind me and gave me the credit."

She added that "Today I think it would be almost impossible to start the way I did. In fact, it would be impossible. You couldn't do it. It's much more stringent now because of what we went through in '86 with refi mania." She says part of what would make it impossible is the licensing requirements for mortgage bankers in the state of Pennsylvania.

She concedes that she fought moving back into retail production with her company, because it was a "harder kind of sell" and much more labor-intensive than the institutional selling you do in secondary marketing. But Al Miller encouraged her to do it and in January, she set up an advertising campaign and Pinnacle became a mortgage banking company.

Al's career is much more a straight shot up the loan production corporate ladder. He started as a loan originator with Heritage Mortgage Finance Company. Stayed with them for a 10-year stretch, first becoming a branch manager and then heading the production unit. Heritage was bought by People's Savings Bank and then Al moved on to join another new management group to start what has since become Meridian Mortgage Corporation. That group included Peter Albert as president, Tony Schweiger as executive vice president and Al Miller as head of production. Another veteran of that group, Joe Maeder, who did loan servicing administration, and operations, now runs secondary marketing for Pinnacle Mortgage as executive, financial administration.

Al left Meridian to form a new company with the Wilmington Savings Fund in Delaware called Star States Mortgage. The start up venture had problems and Al ended up leading it behind to join Sandra's venture in March 1986.

What the two brought to their new company was a sensitivity to their employees that was bred of going through their own rocky times in the business when mergers and acquisitions were commonplace and lots of jobs were affected by that. As Sandra says, "Let's face it. The 1980s were |full~ of leverage buy-outs and acquisitions and mergers, and we were part of the fallout. All of us went through that experience and it got to the point where you asked 'Where is my security?'"

And because Stevens-Miller is a female top executive, she also is extremely sensitive to the needs of working mothers. She notes that 80 percent of her employees are women "who have challenges juggling a home and family and career." Al Miller says even though 80 percent of virtually all of the work force in mortgage banking are women, and most mortgage banking companies are not sensitive to family problems.

But the key business reasons for Pinnacle's success come from the quickness with which it can close loans and deliver them into the secondary market. The company has invested very heavily in front-end production and processing technology to help speed processing and track missing documentation. It also has sophisticated technology for tracking and managing its pipeline.

Because the warehouse line is limited to $15 million, Pinnacle has been forced to learn every efficiency to move production through he pipeline as rapidly as possible. Al Miller says that the average time in the warehouse line per loan is now four days. The company back in July was closing $50 million to $60 million a month, which means it would have to turn over the pipeline about four times a month to accommodate the limited warehouse line. Stevens-Miller said at times that mortgage firm has been able to turn the pipeline as much as eight to ten times a month. She says they track their pipeline so closely they could give seminars on pipeline management. But she says, "We have a $15 million warehouse line. We have to know where it is at all times." Al Miller adds that "we also maintain a 48-hour turnaround on underwriting."

Another critical part of the formula that enables Pinnacle to close loans so quickly is both willingness of its employees to work compressed work weeks in shifts to keep productivity high. Also, Pinnacle owns its own appraisal company and a title company. These companies were formed as a defensive move, Stevens-Miller says, "so we could control the speed of delivery of our securities, because we were delivering them sometimes overnight."

Roughly 40 percent of Pinnacle's total mortgage production uses its affiliated title and appraisal firms, according to Al Miller. But of Pinnacle's retail business, probably between 75 to 80 percent goes through the affiliated title and appraisal firm. They are not subsidiaries of the mortgage company itself, but affiliated by common ownership. The ownership structure was deliberately set up this way to "have a little bit of a cleaner cut" in separation of management. The title firm is called Pinnacle Abstract Corporation and the appraisal firm is ACCU-praisals, inc.

Also, Miller adds, "we do disclose that there is an affiliation to anyone that uses those title services. The appraisal services we don't really have to disclose anything, but we disclose that too." Sandra adds, "It's the customer's choice. We can't force that." Al notes the two affiliated firms are what HUD considers controlled business arrangements, which means they would be covered by the safeguards in the Real Estate Settlement Procedures Act (RESPA), which require consumers be told that they do not have to use the lender's affiliated settlement service company.

The compressed work week and the staggered work shifts arose not only to speed the processing of loans, but to accommodate the space constraints the growing company was dealing with. One shift would work from 7:00 a.m. to 3:00 p.m. and another would come in from 3:00 p.m. to 11:00 p.m. As Stevens-Miller notes, that produced a cost savings because they were using their space in a more efficient way. Also, the compressed work week allows employees to work 37 1/2 hours in four days or three days by building more hours into the day with no overtime. Working mothers with pre-school age children found this appealing, says Stevens-Miller.

Where is this company going? The Millers run down a list of goals quickly. On the list is a production goal of $1.2 billion for 1993. They also want to finalize a funding corporation that will allow them to vastly leverage their warehouse line capacity. They are in negotiations with Chemical Bank to do this and have been working on it for some time. When finalized, it would allow Pinnacle to borrow at the commercial paper rate, lend at market rate and then split the arbitrage profits with investors in the funding corporation. Joe Maeder notes, when this gets finalized, loans would spend 24 hours at the most in the warehouse line. Al Miller adds it also will allow Pinnacle to greatly increase production volume.

Another major goal is to enter the retained servicing arena and the purchased bulk servicing marketplace. To accommodate growth, the company had to relocate to a temporary site as it sold its old building and purchased the historic post office building in downtown Lancaster. Because the state wanted to keep the jobs in Lancaster, the Pennsylvania Industrial Development Authority provided 50 percent of the funds at reduced rates. With the deal, Pinnacle increased its office space threefold and reduced its debt service by two-thirds.

With the incredible growth and strong profits being posted this year and with new lines of business being entered, for example with the RTC in originating affordable housing mortgages for the homes it sells at auctions around the country, the company "could be |at 300 employees~ this time next year. That would be double its current size. But as Stevens-Miller notes that "would be less frightening, quite frankly than it was taking it from zero to 50."

But even with many, many more faces around the office, Pinnacle tries to keep a pact of caring for its employees' needs to make the whole growth strategy work and not become simply another corporate rat race. Stevens-Miller says, "Everybody touts customer service today. We believe it starts first with employee service because they're the ones who go to the customers. If we're not giving them the service or meeting their needs, they certainly can't do it for the customer can they?"

Janet Reilley Hewitt is editor in chief of Mortgage Banking magazine.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Pinnacle Mortgage Investment Corporation
Author:Hewitt, Janet Reilly
Publication:Mortgage Banking
Article Type:Cover Story
Date:Nov 1, 1992
Previous Article:Targeting hot prospects.
Next Article:Sculpting a new service company.

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