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Managing with style: a chief executive's unique management style must define and communicate a vision and firmly direct the strategy of a company.

A chief executive's unique management style must define and communicate a vision and firmly direct the strategy of a company.

The mortgage banking business, traditionally an industry of companies built around successful entrepreneurs, and very top-line driven is rapidly evolving to compete in today's world of high tech and high finance. This new market-place of mortgage companies is characterized not so much by its personalities, as by its sharp focus on the bottom line - on profits, innovation and return-on-assets.

The industry landscape has been transformed during the past 10 years. Consider just a few facts: mortgage banking firms have doubled their market share as a result, at least partially, of the self-destruction of many once-formidable thrift competitors; the once-healthy surplus talent pool is, by most accounts, now operating at a deficit; the average age of employees is now 30- to 35-years old and even chief executives tend to be younger.

A number of mortgage banking executives were interviewed for this article to find out exactly how these top managers actually manage their bottom line. According to these executives, personnel costs account for between 50 and 70 percent of an operating budget based on the executives interviewed. Given that, one might assume that the asset value of a company's staff has come to the forefront. Without exception, executives interviewed for this article were quick to point out that they all make the same product - mortgages - so the only way they can truly compete is with their staffs, by making service to customers genuinely better and, thus, more competitive.

Therefore, the "know-how" in managing the people asset must underlie a firm's ability to recruit and retain quality staff. Consider how the industry is using this people asset today, in terms of handling exploding volumes. With interest rates early this year at a 17-year low - rates on fixed-rate mortgages were at less than 9 percent - analysts are predicting unprecedented origination volume, with some estimates ranging as high as $850 billion for the year. On average, refinancings accounted for approximately 50 percent or greater of the mortgage banking industry's origination volumes early this year, according to our sampling of major companies, which is 40 to 60 percent higher than the previous year.

Unlike the refinancing boom of the mid-1980s, however, mortgage banking firms are not doubling their staff to accommodate the current volume. Instead, it appears many have learned a lesson about boom-time contraction-expansion. This time around, mortgage banking executives of some of the industry's largest firms report they are using a number of cost containment measures: pulling staff from all divisions within the firm; paying staff to work overtime rather than hiring significant numbers of new staff; hiring temporary staff; outsourcing such functions as underwriting; and accepting private mortgage insurers' offer to provide in-house underwriters.

Clearly this time around, mortgage executives are more intent on serving their existing client base - Realtors, builders, developers and the like - rather than simply racing to cash-in on refinancings, as many had done just eight years ago. The reason for this change in focus is the result of a deliberate management decision to build a permanent increase in market share rather than enjoy a temporary blip in volume.

As the evolution of the residential mortgage market continues and competition becomes more fierce and perhaps, more concentrated, it is even more critical for mortgage banking firms to operate efficiently at all levels. The crux of the matter becomes how managers manage people to make that happen. This article reveals how some of today's leading mortgage banking executives manage the infrastructure of their firms.

A sense of style

Just what is a "management style" and why is it so important? "Anything you want it to be" might be a short answer, but a more serious definition includes how an executive implements his or her views of the company and considers the roles that employees play. Management style is created as the product of an executive's evolution to the company's high post. In other words, did the executive come up through the ranks and, at the same time, garner a true understanding of the functions of lower-level jobs and what it is like to be managed while performing those functions? Did the executive inherit the post from a nurturing or a dominating mentor or family member? Does the executive have a dominating, controlling personality, or is his or her style characterized more by understanding and compassion?

The importance of an effective management technique cannot be overstated. Whether in reference to the chief executive, or a divisional manager, how employees view their managers sets the tone, as well as the drive, of a company. It can motivate or stifle an employee, boost or suppress the quality of performance and, ultimately, retain or drive personnel away.

Consider, too, that how a company is managed has a very direct, measurable impact on the bottom line. In most cases, employees will leave a company if they are unsatisfied with how they are supervised or managed. While a company's rate of turnover is a statistic that is increasingly being noted on many monthly reports and factored into both the strategic planning and operational budget processes, many executives interviewed concede they do not yet monitor this telling number.

The costs of a high turnover rate are not just measured in hard-dollar costs. A high turnover rate impacts employee morale and might also be a good barometer for evaluating management skills. One executive notes that if he "sees a high turnover rate in a given branch or region, I start to look at who's managing that division. I review the manager's performance reports to see if perhaps [his or her] management has become ineffecfive and is the cause of the turnover." In hard-dollar terms, one executive estimates that it costs approximately $50,000 for each loan officer who leaves - $40,000 in lost business opportunity based on an average closing rate per loan officer of seven per month and at least two months before that production rate would be recaptured. Add to that another $10,000 in recruitment and training costs for the new loan officer.

The chief executive sets the tone, defines the vision and directs the strategy of a company. And though his or her "direct reports" are most affected, the tone that is set at the top trickles down through the ranks - all the way to the mailroom and beyond in some form or another. One important consideration is the transformation of the management styles of those who are directly beneath the chief executive - because the direction and vision set at the top undergoes mutations as it is translated by others. Controlling that mutation process is the task that falls on the chief executive.

"Let managers manage and

workers work"

Greg Barmore, president, chairman and chief executive officer, GE Capital Mortgage Insurance Corporation, Raleigh, North Carolina, believes the "most important aspect of being a successful leader is to paint a very clear vision of where [a company] is going. The CEO has to make sure the creation of a vision is based on the reality of the environment and the capabilities the company has or can acquire."

Barmore oversees a combined staff of 2,200 as head of GE Capital Mortgage Corporation, a wholly-owned subsidiary of GE Financial Services. He is responsible for overseeing the operations of all the residential real estate affiliated businesses, including GE Capital Mortgage Insurance Companies, GE Capital Mortgage Services, Inc., and GE Capital Asset Management Corporation.

Barmore, who joined GE 25 years ago, rose through the ranks to his current post, and says he has learned many lessons about managing people. The one he most quickly recalls was when he was chief financial officer at a manufacturing company. He recounts how one factory worker responsible for taping a pipe was continually exceeding his daily quota. Suspicious, Barmore visited the plant and observed that the worker was, in fact, honestly exceeding the quota. However, the worker was able to do so because he had designed his own method, rather than utilizing the taping methodology designed by the company's engineers.

The lesson: "The front-line guy knows better than the back-line engineer. Tell [employees] what the goal or task is and let [them] decide how to do it. Set the vision; focus the organization on truly understanding the vision, at all levels. Ensure that employees are meaningfully able to connect their individual job to the primary vision and get out of their way."

Barmore remembers being in positions where his manager was in the way and proffers advice from another lesson learned. "If you always check on an employee's work, the quality of the work goes down because the employee begins to rely on you to check. As a manager, you have to be willing to let them fail even if you know they are going to fail. Obviously, you protect the company's interest," but to let employees fail is to let them learn.

Addressing the tendency to build layers of management, Barmore suggests a manager have as many people as possible report directly to the executive. "Don't let them build layers. If you do, you won't be able to drive the organization, you won't hear from the bottom and the bottom won't hear from you. Also, with too many layers, managers are more apt to interfere with one another. Make sure everyone has a lot to manage, but don't make them managers. Let managers manage and workers work."

One of management's biggest failures, Barmore and others agree, is not telling employees when they do well and, unfortunately, not addressing poor performance until it is too late. Almost immediately, managers should, Barmore says, institute reward systems that recognize a job well done. "Tell [employees] when they do well but also tell them when they do poorly. Managers too often get involved in personal hostilities. Instead, they should simply assess such instances and evaluate what was intended. They should stay out of feuds and truly be |one-minute managers.'"

Learning to trust others

Perhaps no one appreciates the value of employees more than a company's founder. Jeffrey Taylor, CMB, president and chief executive officer, Wendover Funding, Inc., Greensboro, North Carolina, started his company in 1986 from the ground up, literally. He formed Wendover as a national loan servicing firm in 1986 with one partner and two staff members operating out of a single office.

Wendover has enjoyed considerable growth since its inception. At one point, the firm went from 70 to 140 employees in just 120 days and is fast approaching a staff of 200, with a servicing portfolio exceeding 52,000 loans. That success would not have been possible without "our employees. They are, literally, the building blocks of our company," Taylor says.

Initially, Taylor says he "started out trying to do everything myself, and while I still think in those terms, I have, over the years, learned to trust others and let them make their own mistakes; to accept that many things will happen that I cannot fix; to not second-guess my own decisions. I had to learn the difference between emotional and business decisions and to develop the ability not to look back - if it was a good decision when I made it, it is still a good decision two, four or six weeks later."

Underscoring the value of a good employee, Taylor notes that before he will open a new office or branch, he "first finds the right person" for the job and relocates him or her to the new branch. "I would," he explains, "never open a new office and then hope to find someone. The first step is to always find the right person for the job."

A leader, Taylor says, should constantly give employees feedback - both good and bad. He says the executive also has to set a tone, to assure that everyone within the company is looking at the same picture and seeking the same results. "I try to give employees what I wanted when I was coming through the ranks."

Combating the tendency to departmentalize, and hoping to counteract the potential for a "we versus they" viewpoint, both Taylor and his partner, Kenneth Austin, Jr., intentionally stay visible. They both walk through all departments regularly to speak with employees and participate in all company activities, big and small. It is important, Taylor believes, for employees at all levels to know they are part of the Wendover team. "If employees don't feel appreciated and if you don't give them the right tools, it's tough to manage anyone."

Matching styles and talents

Managing a mortgage banking operation owned by a bank or a bank holding company requires an executive who can work in a much less flexible corporate setting. One executive complained that his job as a senior manager at a bank-owned mortgage company became so frustrating that he left. This was due in large part, he explains, to the bureaucracy. "It was so structured that I had to have the head of personnel approve the hiring of a loan processor. That type of control [and] restriction was terribly frustrating. My hands were tied. Communication was so stilted that, despite the fact that I was part of senior management, I felt out of the management loop. It reduced my morale and [the morale] of my staff and, ultimately, we all became less effective at our jobs. Eventually, I left because of it."

Anthony Schweiger, CMB, president and CEO of Meridian Mortgage Corporation, Wayne, Pennsylvania, which is owned by Meridian Bancorp, Inc., tells a different story and says he is comfortable with his parent company. At the outset, Schweiger says, he and his colleagues who started the mortgage company, "were fortunate in that I had had a couple of bank holding company experiences. Meridian Bancorp understood that mortgage banking was not [commercial] banking and...we have been allowed to operate as a mortgage bank."

Ownership aside, Schweiger believes that employees should be hired for talent rather than experience. "People come with certain basic skills and talents that do not, necessarily, match your [own]. You should hire for talent, not simply for a skill match or generic experience. Ours is a rapidly changing environment. Without the skill to adapt and change, rote experience is of questionable value." When companies are on an accelerated growth path, "the management staff needs to really be growing just ahead of the company so they are controlling the volume and the risk, but also are capable of planning and doing the people things necessary to meet those goals and risk. It is their job to create a climate where people want to do their very best to achieve corporate objectives."

Noting that "a loan is a loan," Schweiger points out that "the products we sell aren't any different than our competitors - our people truly set us apart. Our competitive edge is our people.... |Human resources,' and |capital resources,' are appropriate terms. Running a business meshes both of these resources. Human resources isn't just recruiting, personnel, etc., but is also a counseling function that helps managers maintain their objectivity in managing that human asset. We are at a time when, in the residential loan business, everyone is looking for good people, which drives how you can or should deliver your product. Big experience but little talent in people can produce lock-step employees who simply cannot change with changing times."

Meridian, Schweiger adds, has succeeded "by having people with the courage of their convictions, who think through their positions, their arguments. We certainly don't have |yes people' here. We want articulate people who are willing to argue their point of view. As a manager, I manage conflict, all arguments are heard and the best survive."

Schweiger sees today's CEO "as an orchestra leader trying to get a bunch of professionals all moving together, creating a wonderful performance, each doing [his or her] own individual thing." Once top executives have perfected this "conductor style, they can continually refine it, to change as the company changes. You have to be willing to change with it or you will fail."

Schweiger oversees a mortgage banking staff of almost 800, with 15 branches in the Mid-Atlantic, Midwest and Pacific Northwest. As of January 1992, the company reported a $10.1 billion servicing portfolio. Meridian's production volume was $438.5 million at the end of January.

Schweiger characterizes his management style as "driving; requiring hands-on involvement by front-line managers who are expected to know what's going on and to fully understand volume and profit relationships but [who can] also take manageable operational risks. We have a very rigorous reporting discipline that starts at the supervisory level. Managers report on what they have done and what they will do. We expect managers to have problems and even make mistakes, but they must communicate these [problems] to their superiors. At the senior management level, a synopsis of these reports are reviewed. We are trying to sensitize senior management to look at key items that drive the decision-making process to a lower level than has existed in the past. In order to do that, we need to improve our systems. They don't all currently talk to each other like they should." This re-engineering project, he explains, will take several years but will ultimately rebuild the company's management information system.

Schweiger, who started in the mortgage banking business while still in high school, believes his extensive experience at all levels of mortgage banking has positively molded his management skills.

"What I have discovered over the years, working for a number of companies and, particularly, as a consultant, is what does and does not work" in terms of ideas and management styles and approaches. Experience from the bottom up, he suggests, provides genuine insight into all functions of a company and, hence, tends to produce a more sensitive and supportive manager. You don't want to lose that insight, he adds, once you've reached the top. One way to do that is to stay in touch with the lower levels of the company and to occasionally participate in functions well below the senior management level. For example, when he was once concerned about how complaints were being handled, Schweiger spent a day answering the telephones in the customer-service division.

Good communications build morale

Joel Brotman, CMB, senior vice president, First Town Mortgage Corporation, Secaucus, New Jersey, emphasizes the importance of communicating from the top down.

He employs an "open line of communication, a constant one-on-one" in managing his staff. "I try to give guidance, develop consensus and give professionals room to do their jobs as they see fit. I focus on communicating and jointly developing goals and strategies, working with managers to help them implement and achieve their goals. I frequently pull people together to have them update me on their activities, to brainstorm. This also gives them a feel for how they affect one another and how they can help one another. Too, it avoids duplication of effort. Being informed, fully informed, is a key factor in building morale."

Brotman, one of three members of a senior management team at First Town Mortgage, brings more than two decades of mortgage banking management experience to his present position as head of Meridian's production and post-closing operation.

First Town Mortgage employs a mortgage banking staff of 240. The company operates chiefly in the Northeast with 12 branches. In March, the company reported a $1 billion servicing portfolio and is currently projecting a 1992 production volume of about $750 million.

Brotman's long tenure in managing mortgage banking institutions has led him to draw some conclusions about what methods of communication work successfully. He was formerly president and CEO of Howard Savings Bank in Livingston, New Jersey and senior vice president of Margaretten & Company, Inc, Perth Amboy, New Jersey.

To effectively lead a company, of any size, Brotman believes a high level of communication is essential to maintain morale at the lower levels of a mortgage banking company and to ensure that departments work effectively with one another. For example, he points out, "Every department within a mortgage production operation has a tension with every other department. Each has a different function but each needs the other. They don't necessarily appreciate what it takes; each is under its own set of pressures. It is a big mistake to not provide each with a full understanding of how the others function."

If one were to try and distill some of the essence of the management advice offered by these top mortgage managers you would likely come up with something like this: "Be honest and fair; be consistent, apply all the rules to all the people, all the time. Tell them when they are good and when they are bad. Provide a vision and ensure that it is understood by all."

Anita Willis-Boyland is a Washington, D.C.-based corporate consultant specializing in real estate finance. She recently completed a book to be published by the Mortgage Bankers Association of America, examining how mortgage banking firms are managed and structured. She was previously a reporter and an editor for Real Estate Finance Today.
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:Internal Management
Author:Willis-Boyland, Anita
Publication:Mortgage Banking
Date:Apr 1, 1992
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