"It's Not About the Coffee"

Former Starbucks president Howard Behar says "Starbucks is not in the coffee business serving people. We are in the people business serving coffee."

Within 3 pages of beginning It's Not About the Coffee I found myself looking for a pen. Finding real deals is great and that's what I'm uncovering here. The author, Howard Behar has been in the trenches. Most company presidents spend their time in meetings, meetings, meetings...I know, I am one.

Mr. Behar though, tried to visit as many stores (10 or more) each week as he could. This is where he learned the most about his business. This is where he was able to set and let his entrepenual thoughts run wild and take hold. I had always assumed the President of Starbucks was one of the original owners, but not so. Mr. Behar was 44 years old and had 20 years in the retail furniture business when he came to Starbucks in 1989.

This is a great read and is puncuated with a bit of Mr. Behar's personal history as he shares the ten Leadership Principles he used through the years.

Here are some insights into his principles (just insigts, not the principles...you'll need to read the book to get those);

• Know who you are
• Know why you're here
• Develop trust in yourself
• Build trust
• Listen for the truth
• Own It
• Think like a person of action and act like a person of thought
• Trust = Truth = Accountability
• It's not rocket science, it's a lot harder
• Getting past the no book

Maybe, maybe, the most best quote in the book (I'm rereading it, again) is on page 100 and Mr. Behar is talking about truth and accountability. He quotes Harold Geneen, CEO of ITT:

"I believe it is an immutable law in business that words are words, explanations are explanations, promises are promises - but only performance is reality. Performance alone is the best measure of your confidence, competence, and courage. Only performance will give you the freedom to grow yourself."

Good reading,

Danny

Alethes' Continued Response to Market Conditions (Business Not-So-Usual)

At a recent round-table discussion, I was asked “where do YOU see the business headed and how do YOU feel about Alethes' role?”

The short answer was ”I am healthily optimistic about where the mortgage business is headed and Alethes’ position in the end result.” I went on to talk about such items as history, industry changes still to come, the media, change and trust; we have to recognize where we've been, but not just from an observation point-of-view. We have to be willing to change and we have to trust ourselves. Our change must be responsive and proactive, not reactive. I’ll resist the opportunity to talk about trust at-this-time, but I know that I have to trust myself and I have to trust those who are originating, processing, underwriting and closing loans for Alethes.
I’m sure you’ve read the various articles published recently, that while loan originations have decreased, loan fraud has increased; and the top indicator is misrepresentation on the loan application.

These reports, coupled with live compliance problems in every lender’s back office has caused lenders/investors to mandate new restrictions, representations and warrants on their brokers.

One of the challenges we're facing is the changes that our lenders are imposing industry-wide through new wholesale agreements. Many of these new agreements do not include provisions for the lenders/investors due diligence; instead, the responsibility is put back on the broker (Alethes) to repurchase the loan even if they, the lender, do not do perform sound underwriting and closing.

At this point, I’d like to re-state Alethes’ three long-term goals:

• To be the premier lender in the markets we serve,
  
• To have the right to go public if we so desire and
  
• To be a Top 10 place to work
  

As part of our desire to achieve the results of the three goals Alethes, LLC, its executive team and myself are committed to the origination and delivery of quality loans, whether banked or brokered.

Over the next few weeks, Alethes will begin instituting various measures to insure our viability in this changing market. Some of these measures will involve new agreements with our investors, new file retention policies and changes to whom and how we broker-out loans.

While there will be changes in many areas, please be assured we are thoroughly reviewing our options and our competition’s handling of the same events. Still, there will undoubtedly be some areas in which each and every one of you will have an issue.

I promise to keep you as readily informed as I possibly can.

Sincerely,

Danny L. SmithPresident & CEOAlethes, LLC

Paying Attention

Every morning at 9am I have a check-in with my direct reports to get a quick status of non-routine items. Yet, the non-routine has become the routine these days. This meeting should last 10 minutes max but many days goes 30-45 and multiple meetings spring up from this meeting to discuss at length a new change. It has been difficult to be responsive and not reactive.

I know communication from Alethes has been inadequate, so the next few weeks, I will attempt to communicate to you better, even over-communicate. No doubt, I'll step on some toes as I do because I have no trouble with the desire to communicate, yet after 25 years of personal history in this industry, I hope I have an idea of what will take us cause problems. Yet, it is a daily struggle to grasp what is real and what is fantasy lately.

That history tells me that it is the basics that causes the problems. As an example, a recent article in in Originator Times that reported incidents of mortgage fraud in the U.S. increased by 42 percent in the first quarter of 2008 from a year ago, according to a new report released by the Mortgage Asset Research Institute.

The top fraud incident type, in all states, was in “General Application Misrepresentation” followed closely by misrepresentations related to “Income” and “Employment.”

At Alethes Wholesale, files get stalled due to questions about income and employment more than all other factors combined. Obtaining a proper verbal VOE prior to closing is extremely difficult on a regular basis.

Some reports are saying that it will be two more years before the mortgage industry begins to settle down to a routine. So far the melt-down has hit sub-prime, FNMA, and FHLMC while skirting the FHA scene. These reports indicate the next wave of collapses will hit medium to large banks nationwide. Part of the problem at these banks is the large number of agency, including FHA, servicing portfolios that are in trouble due to defaults.

How does all this work into our business, at our level?

That is what I'll be rambling about in these postings, LO/Branch Manager Round Tables, and conference calls.

Some of the subjects will be;

• Errors and Omissions Insurance and Fidelity Bonds; how this is maybe the number 1 change agent effecting how we all do business
• Life after Seller-Funded DPA
• Wholesale Lender agreements; what they no longer cover
• Neighborhood Watch numbers
• Fraud problems that plague each and every one of us
• Best practices; all around Alethes

This is not a time for the light-hearted and I'll apologize now for those that think I'm too blunt. Good-to-Great author Jim Collins says "great companies confront the brutal facts and believe they'll always survive." Another book I've come to use as a guide for running a good-to-great business is Stephen M.R. Covey's Speed of Trust. If you haven't picked up a copy of Speed of Trust, I'll be glad to send you one.

We need to build trust back in to Alethes and our business and right now many of us aren't sure what to trust, even ourselves.

I'm committing to you that I'll work and pray hard about fulfilling our Mission and Value Statements. I'm committing to you, as a foundation for doing so, that I'll practice the Four Cores of Credibility Mr. Covey indicates are paramount in establishing a high trust company.

Danny Smith

CEO/President

Alethes

Heads-Up, Heads-Down, Blame, Behavior, Fangs, and Fodder

Authors Miller and Blanchard, in their management/leadership book, “The Secret”, talk extensively about Heads-Up and Heads-Down work. Well, July was a whole lot about heads-down for your's truly.

There's an couple of old sayings about "remembering the trip and remembering which horse brung you to the dance" that keeps me reflecting on the past and it's doubtfull that I'll forget the past 12 months any time soon. A year ago, I would have never thought the sub-prime collapse would have such far reaching fangs.

A deep inside view of what has caused much of what you are experiencing can be found in Paul Muolo and Mathew Padilla’s "The Chain of Blame.” Whether it was John Glenn's knowledge of how I like looking over the past, or the fact it is just good fodder, his book recommendation has fulfilled both.

Overall, I'm extremely thankful for our behavior this past year. One thing we’ve consistently done right during these reorganizational times has been how we've behaved. With the reverberations of the collapses have come auditors looking in every nook and cranny of every mortgage company of any good size.

How has Alethes done through all of this? Well, we’ve been poked and prodded very well thank you, and to-date, we've been blessed with good audit after good audit. One of the audits verified a modest increase in profits over the previous year. Thank you Lord.

My focus in the coming months will continue to be about building trust, truth, and best business practices; in essence, good behavior.

Along those lines, I’d like to point out something about the truth; when truth is a person’s guiding value it helps a person internalize wisdom and build good character. What we think about affects what we do; therefore, we practice the truth by regularly testing our thoughts, actions and words against it. What we regularly do builds habits and further shapes our character. Our character is displayed in our behavior.

Let’s practice good behavior.


Have a good weekend,

Danny

Best Business Practices: Trusting Yourself

Not until I read Speed of Trust had I considered the importance of trusting myself. Not until I read and began specifically practicing the book’s mentioned behaviors did I get the inclination of the impact of trusting myself.

But still, it was not until recently, a year after first the reading that I began noticing the effect of not trusting myself has on teamwork, communication, having good conflict, achieving good results, and a host of other things.

“Trusting myself has to happen before I can ever begin restoring and/or extending trust to others in a REAL way.” If you have not done so, read pages 309-311 in Speed of Trust. If you have, please read it again. What Covey has to say is maybe the most important aspect of Best Business Practices; extending trust to yourself; telling yourself the truth, respecting yourself, stop beating yourself up, be open and honest with yourself about your weaknesses, forgive yourself, stopping putting yourself down, getting better, get your head out of the sand, extend smart-trust to yourself.

The first book Cathy, my wife, ever saw me purchase (’86) was “What To Say When You Talk To Yourself.” I’m sure she was wondering what she had married, but I was sincerely intrigued by the title. A few years later, I went to a men’s retreat and the subject was “The Lies We Believe.” This was another book based in part upon how we talk to ourselves and what we say.

Now, Covey tells us that productivity and profitability improves as we trust ourselves first, then others. Hmmmm….maybe there’s something in all the “self” stuff – the Bible even says to love your neighbor as you love yourself….gulp.

If you don’t have a copy of this book, let me know and I’ll send you one – my gift.

Let’s become the best in the business – together.


God Bless,

Danny

Value vs Relationship

“Recognize that today's customers are increasingly buying on value, not on relationship.”

This is quote from the book The Five Most Important Questions You Will Ever Ask About Your Organization by Peter Drucker with Jim Collins, Phillip Kotler, James Kouzes, Judith Rodin, V. Kasturi Rangan, and Frances Hasselbein.

While I thought much of the book was really good (it's hard to not find good from such a group of authors), this statement was worth sharing. The responses show a great deal of emotion and has brought further dialog...
_________________________________

From: John Bentham
Ultimately, almost all purchased are based on value:

The buyer either values the "relationship" and won't mind paying more for something he can get for less somewhere else, or...

The buyer feels as if the product he's purchasing is a commodity and shops on price, thinking the service that comes with the product is the same anywhere.

Our challenge is to "add value" to the loan product such that the customer will value the relationship more than the purchased product.
_________________________________

From: Joe McCubbin
I think above all it comes back to "Trust". The true Value of the Relationship is the Trust, thus V + R = T. Joe
________________________________

From: Mark Kelly

Danny,

I was trying to be humorous, but understand now that you were seeking serious responses. If I may readdress the question that you posed:

Value can be created on a transaction; a service rendered, or even something as simple as giving a stranger directions when they pull up in front of a store as you walk out – they’re lost and looking for help. You were “valuable” (aka “creating value”) for that stranger by helping him/her find their way to their destination. One could choose to pass it off as “just being nice”, but the fact is that you gave value, however insignificant it might seem.

Relationships however require an investment. Whether a professional or personal relationship, it takes time to build a relationship. Sure, you can give “instant gratification” to someone in a professional capacity in our business (say .25% off on their next lock – which also could be called “value” since that price break was of value to the LO), but did a relationship just spring forth? The opportunity to begin to BUILD a relationship was created, but it’s going to take time……and continued investment on both parties part…….to actually turn that one incident into a significant relationship.

To me, a relationship that is built between individuals (personal) or professionally (whether between two companies……an individual and a company……..employee and employer, to name a few) all have value built in over time. The value of shared experiences, goals met, transferred trust – these are some of the hallmarks of a “valued” relationship. If either party in the relationship begins to no longer perceive value being added or the value is eroding, that relationship will begin to suffer as well and oftentimes results in one party seeking “value” elsewhere.

Value and relationship share an interdependent existence in my opinion. In the short and long-term, it takes a mixture of both to create a powerful combination of both over time.
_________________________________

From: Bryon Cunningham
Value is much bigger than price or service. Value is different from customer to customer for some it may be mortgage training for others it may be a wakeboard lesson and for others it may be an invite to a bible study and yes we must provide a certain price and a certain level of service. The key is relationships. Get to know the customer and provide them something extra, something they don't expect. Every customer has different needs and we have to identify and determine if we can fulfill those needs using our core values for direction.

If I stop at a convenience store for gas I have knowledge of what type of service to expect but if while getting gas someone from the store comes out and cleans my car windows I would call that value.

_________________________________

From: Christy Meaux
I think it depends on how you define Value...

Is it strictly price driven, or is it the value we create when serving our clients by meeting their needs, thus having the relationship be a "result" of the value in service?
_________________________________

From: Melinda Truitt

I'm not sure I fully agree with that, I think there needs to both :-)
_________________________________

From: Mark Kelly
What??? Just last week, they were buying on relationships.........now it's back to value?
_________________________________

Other comments/dialog?

Great Discussions Yesterday

Thanks to those able to make either of the Dallas Round-Tables yesterday. I enjoyed hearing what you had to say about Best, and Basic, Business Practices. In particular, with the constant changes in our industry, it is always good to think about “what could I have done 6 months ago that would have made today better.”

Even better, to ponder on the commonalities of those loan officers that have lower lows even in the down-times; what do they do month-end-year-out that gives them steady business.

One question I asked the participants was “what 3 things could you do to improve your business?” Here are some of the responses:

• Time Management
• Patience
• Return phone calls
• Training on DO/LP
• Product Knowledge
• Follow-Up
• Organization
• Punctuality
• Farming for new business
• Follow-Up after closing
• Web site usage
• Customer Service
• Marketing
• Communication
• Knowing the client
• Be a better technician of the business
• Change management
• Focus on vision/goals

By far, the top 3 points of discussion were on Time Management/Organization, Training, and Marketing.

The last few minutes of each discussion was spent talking about how one can increase their productivity by learning to extend Smart Trust.

So, instead of me rambling on, I’ll let the participants post their comments (or criticisms) and we’ll continue the discussions below.

(Note: it can take a few minutes for the comments to clear and be posted.)


Danny