1. An ongoing, groundbreaking financial benchmarking study, keeping specific company information confidential but sharing the aggregates. This answers the “How do I compare?” question.
2. A large national organization with the scope to pursue common business interests. As MBO grows, we will separate into smaller groups of less than 20 members in like-sized and non-competing markets. I’m modeling MBO after the Young Presidents’ Organization, which I belonged to for 11 years and I credit with making me a better business person.
3. Best practices defined and vetted from the real, measured profit performance of MBO members and presented monthly during interactive webinars and at an annual gathering.

I’d like you to invest a little time to learn how MBO can help you grow your business more profitably. Join us for a free introductory webinar. A schedule and registration information is available to the right on this site or by calling 877-Tom-Ward (877-866-9273).

Sincerely,

Tom Ward

I. Benchmarking

The mortgage industry is not good at providing benchmarking information to the entrepreneurial company, the people who originate 60% of home loans across the country. The one study I found is for the mega lender/servicers and that’s simply a different game than what the entrepreneurial mortgage origination company is playing.

The centerpiece of MBO will be an ongoing financial and operations benchmark study. As members join, their data will be added to the aggregate study. Data from all members will cover as best as possible the same periods so comparisons are valid. This data will become more refined and widely valid as more companies join MBO. You’ll have common ground then to compare your own OTT® performance against the highs, lows, averages and medians among companies like yours. For example, what is par for processing costs for a mortgage company producing 200 loans per year?

Since the late 1990s, I have been teaching One Transaction Thinking® and using it for decision-making when we consult with mortgage company owners. Companies faced similar issues, which became more apparent when data was in the OTT® format. The benchmarking portion of MBO will validate my own intuitive comparisons between clients.

OTT® had been about developing par for revenue, cost of sales and expenses within your company. While that’s fine in itself, as I’ve consulted more deeply with owners who have been through the course, something is clearly missing: What is par for the game? They get it. They understand their data better. But, as one client put it: "What do I have to compare to?" That’s a huge question.

In committing to this course, in January 2007 I hired Ken Maier, a former analyst and director at Allstate and a CPA. Ken worked 21 years at Allstate. Ken will direct the financial benchmarking program and staff of analysts as MBO grows. Ken has been beta testing the benchmark system to ensure that we can create consistent output and valid data taking varied P&L formats into the common OTT® format.

In addition to compiling your P&L into the OTT® format and building aggregate data for highs, lows, means and averages, we’ll ask each of you a series of questions about operating practices. We’re drawing from my consulting experiences here and we will be able to draw clear correlations between practices and financial performance.

II. The Organization

I mentioned that MBO will be organized like the Young President’s Organization. I was eligible for that membership by achieving certain criteria at Majestic Mortgage and was a member for 11 years until, unfortunately, I was no longer a young president. You get a rocking chair when you leave YPO, a perk we’ll probably go without for MBO.

YPO was an international organization and had about 150 members in Chicago chapter alone. The most powerful things I learned came from my forum meetings: 15 or 20 of us sharing what challenges we faced and how we overcame them in our businesses. Forum members were genuine, authentic people. We promised complete confidentiality, put all our cards on the table and helped each other. My forum members helped me become a better business person in the mortgage business.

Two issues are critical here. First, the data you provide is completely confidential as are the discussions and information shared among forum members. Second, firms competing in the same geographic markets won’t be in the same forum. This is why my YPO forum was so powerful. With complete confidentiality among non-competing businesses we shared the most intimate details of our business experiences. The more deeply we shared, the more we each grew. We’ll separate competitors at the forum level on geography. The charter MBO members represent 26 states so we’re starting out with diversity.

MBO members will contribute to an index of skills. Already, I’ve hooked up two clients, one who was beginning to explore voice over internet technology and another who had already interviewed and ranked companies. This index could be like a Craig’s List for the mortgage industry for experts in specific fields, even for vendors.

III. Best Practices

Recently I was speaking with one of my consulting clients who was making a point and quarter over wholesale. He believed that was a home run. About two hours later, I was talking with another client who was making two points over wholesale yet was discouraged.

This example can go two ways. What’s the benchmark for points over wholesale? Just as important, both of these people have practices to learn from. What efficiency practices make a point and a quarter a home run? What value equation is the other delivering in order to achieve a two point margin in a competitive market?

Combine the benchmarking data and the best practices and you have a powerful equation for ProfitAbility®. As a group, we have a lot to offer to each other.

The combination of the OTT® financial benchmark and operations questionnaire will lead us to the best way to handle specific issues:

Is it best to meet your clients face-to-face or by phone?

• What’s the maximum commission split you should pay?
• What documents must you get from your customers and how does that affect workflow, processing time, underwriting turn time and application to closed loan conversions?
• From where do you hire processing staff and how do you train them?
• How many files should a processor handle?

I liken this to gaining the power of a franchise. Franchises work in the restaurant business because everything can be duplicated. The franchise system tests, refines and shares what works best. I saw this in action recently when I sat in on the Jimmy John’s national convention where franchise owners shared their experiences on what worked best and most profitably for them.

Jimmy John has more than 1,000 sold franchises and, at the convention, the owners were sharing detailed practices on efficiency in sandwich preparation and down to how to cut bread; why not to buy produce on a Tuesday; and, how to compensate delivery drivers. One owner showed a detailed analysis on why a carefully defined, smaller delivery area was more profitable.

The Jimmy John’s franchise owners have an obvious commonality. Entrepreneurs in the mortgage business have commonality also. Everyone in MBO will benefit from open, honest sharing. The best practices will be the real deal because we will select the presentations by MBO members based on their profitability. This vetting process will enable us to put best practices into context with the P&L. Here’s the P&L before and here’s the P&L afterward. We’ll dollarize the effects of best practices. Keeping everything in the OTT® format puts everyone on the same page.

MBO will be real people helping real people improve ProfitAbility® through shared experiences. We will have general membership webinars or teleconference sessions as well as sessions among forum members pushing best practices to the fore.

Annual Gathering

MBO will have an annual gathering, allowing members to meet one another. The purpose of the annual meeting will be to share best practices presentations by members. We will showcase speakers who are not MBO members but who are experts on legacy topics like developing an exit strategy, partnership agreements, buy outs and business valuation and the sale of your company. We will also engage experts on best business practices from outside the mortgage industry.

Our Purpose and Contribution

MBO is almost precisely the kind of support I looked for and failed to find when I started my mortgage company in 1987. Majestic Mortgage was started on wits and entrepreneurial zeal. I had never taken a loan application. I was a broker-owner of three Century 21 offices and just wanted my customers to experience good service.

I started as a mortgage broker and I struggled before I really learned the guts of how to run a highly successful, multi-state mortgage company. In my best month of my best year, we closed 418 loans for $77,565,635 on a $25 million warehouse line. Of the 418 loans, 417 were closed on the contract date for purchases or on the closing date we assigned when a refinance application was taken. We developed a slots scheduling program to manage this process.

That year we handed out profit-sharing checks totaling $365,000 to 53 people, exclusive of my president and vice president of operations, who each also received large profit-sharing checks. A processor with 11 months tenure was handed an $8,800 check. Profit-sharing created memorable experiences.

Along the way, I began speaking, starting with a management breakout at Todd Duncan’s Sales Mastery. Much of what I talked about was the culture of the company and the passion for creating an exceptional customer experience. We spoke about tenure and introduced our key players. Majestic enjoyed average tenure of 5.3 years, with 30% of the staff having more than 10 years tenure.

I had developed and trademarked a streamlined P&L report I came to call One Transaction Thinking®. OTT® is one side of an 8½x11 sheet of paper showing my chart of accounts in revenue, cost of sales and expense categories. By combining my production report, I broke down the big numbers to ones I could remember and manage, based on each line item expressed on a per closed loan basis.

I delivered a one-day workshop focused on OTT® around the country. This presentation evolved into a two and one-half day retreat, How to Build a World Class Mortgage Company, at a training center we built at our Vernon Hills, IL, headquarters. During the workshop we trained attendees on the OTT® system and the five focal areas for correcting the P&L. We literally opened our mortgage operation to scrutiny discussing origination, marketing, operations workflow, profit sharing and the culture of a successful company.

We talked about hiring practices and how we hired college graduates and rigorously trained them over five weeks to process, achieving a fully managed pipeline of loans in about six months.

I spoke of how I struggled with the P&L statements my accountants delivered and why that was such a drag on my ability to manage my company and make critical decisions.

As the refinance boom wound down, I needed to align my passion with my investment. I had to make a decision to either put my passion to teach on hold or to divest my mortgage company to align my interests. After much soul searching, I took the opportunity in May 2006 to sell Majestic Mortgage to Cherry Creek Mortgage Company. This freed my time to consult, speak and teach.

Several thousand mortgage company owners have learned OTT® or attended How to Build a World Class Mortgage Company. I speak about ProfitAbility®, for both originators and owners, two to three times a month at association and private company events. We’ve developed and are beginning to deploy self-study courses on OTT® and the Consumer Direct Sales Training workshop for originators.

MBO is the evolution of my thinking since walking across the hall about a year ago from the mortgage company to my consulting company, Majestic Consulting & Marketing.

Conclusion

MBO is a natural outgrowth of discussions I’ve had with clients and with people I know and respect in this industry. The demand for OTT® is ongoing and the question "How to I compare" keeps coming up. I’m doing this because MBO is what I would have loved to experience when I started my mortgage company in 1987.

I’m passionate about teaching what I’ve learned along the way… my PhD in mistakes as I’ve called it. MBO gives me a way to widely share my knowledge as well as the experiences of smart colleagues who have become clients and friends. Many became charter members of MBO and will form the core leadership team in the days, months and years ahead.

Part of my thinking is a David & Goliath challenge. If the rewards of this business aren’t in balance with the risks, then the only players left will be the national lenders. The entrepreneur will lose and so, I believe, will the consumer.

Qualification is simple: Do you have skin in the game? If you’ve had to skip a personal paycheck to make payroll or withdraw home equity to cover cash flow, then you no doubt have skin in the game. You’ll have empathy with other owners and MBO members. Ownership is the qualifying criteria, whether you own a company or a net branch. On net branches, we’ve instituted a saturation point: net branches under any company cannot be more than 10% of membership. This will ensure diversity of ideas and approaches to business which will help us all.