I’m going to share three cases of how increased sensitivity to seemingly trivial and unrelated thoughts spurred great ideas. In a bit of a biography, I’ll cover the examples of how I got into the mortgage market as an entrepreneur in 2002 before it took off, how I grew the company, and how I got out in 2005 before it all crashed. We can sometimes find clues in the most innocuous places. If we tune in; these clues can be the catalyst that leads to tremendous opportunity.
For proper context, I need to state my limitations. I don’t think I can time markets nor do I think I can do anything too spectacular in areas beyond my core competency. A good idea requires thorough due diligence. As always, a rising tide lifts all ships. Now, how might someone come up with the idea to board the ship? Let’s begin…
In 1999 I was a 23 year old kid with long hair starting a job as a Loan Officer. I read a career book and the idea of getting paid to loan money seemed pretty appealing. A family friend got me a job at North American Mortgage. Being precocious, I thought I could do a better job than the branch manager I worked for. But, that would have to wait. I first left to take a salary job at AIG SunAmerica in the annuity business. As I would drive to work or night school afterwards, I kept hearing radio advertisements for mortgage companies. These ads often used a “rule of thumb” for when a person should consider refinancing. For instance, the ads would state “if your interest rate is 2% more than our rate, it makes sense to look at refinancing” to cover the fees. What I noticed over time was that the “2%” figure kept dropping down. First to 1.5%, then 1%, and at the height of the market “no points, no fees” was the norm. This was my first clue. From my job at North American, I also knew borrowers were becoming more accepting of short term loans with two year fixed interest rate periods, after which they would refinance. I thought even in a flat interest rate environment, a borrower is going to be more prone keep their current loan a shorter duration than they historically did because of these two influences. This “churning”, as it was called in the annuity industry, spelled opportunity for me because new loans were going to happen. I was fortunate enough to have been well positioned and prepared to take advantage of the opportunity and I stepped out of my secure job on January 2002 with short hair and a little more wisdom.
By 2004 I had grown a mortgage brokerage to about 40 people riding the unexpected tide of low interest rates. However, the market cooled off a bit from 2003. I wanted to take my business to the next level and become a banker but it would be harder to do in a contracting market and, we had used most of our cash to grow the company and a separate escrow business. I felt a bit stuck until I saw a show on the history channel. It was the biography of Charlie “Lucky” Luciano. While a show on a mobster would seem to conjure up many unsavory ideas, there was one particular item that stood out to me. This guy organized a group of powerful notorious competitors into one large advantageous force with common interests. Considering the company he kept, that seemed an amazing feat. This was my second clue. I paired the idea of organizing competitors with the knowledge that mortgage banking is largely driven by loan volume. So, I organized my own syndicate of competing mortgage brokers funding over a half a billion a year. I represented my group’s aggregate loan production and made a deal to merge my company with a local mortgage bank while providing access to my group’s business. I devised a quality incentive plan that enabled my syndicate to receive privileges and additional compensation with great results. I was also now in the position to grow our new wholesale division as a banker. Like Charlie, there was a lot of luck involved but I wouldn’t have tuned in to it if I wasn’t sensitive to ideas from strange places.
In 2005 I was having concerns regarding the mortgage business; internally and externally. I had zero visibility into the things AIG, the regulators, the unscrupulous lenders, rating agencies, and investment bankers were doing. But, I did notice more and more of the “car salesman” atmosphere in the industry. The culture didn’t fit with my identity and I found myself wishing there were more entry barriers to the business. Soon enough, I was at a party when a friend introduced me to his date; a girl he met on Myspace.com. Not to be judgmental, but I had a very strong suspicion this young lady might just be a dancer of the exotic persuasion. Well, before I could jest with my friend on whether Myspace had a new service I wasn’t aware of, his date dropped a bombshell on me; she was a wholesale account executive at one of the large subprime mortgage shops. She may have noticed my jaw hit the floor as the conversation abruptly ended. This was clue three. I was quickly reminded of the story I read about Joe Kennedy getting a shoe shine when the shine-boy gave him a stock tip. Joe credited this event to leading him to sell all of his stock before the crash of 1929. My event also became a turning point. I could have chalked it off as just a one-off meeting but, I was sensitive that my industry was leaving my comfort zone and I was diligent in looking deeper. The event was merely a catalyst and required much more homework but, it put me on the right track to make a difficult business decision that was best for me; it was time to get off the ship.
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