Dan Antion

Satisfaction Delayed

We were at this bank long enough to give our team a name.

Before I decided to take Sunday’s off from writing, I was working my way through the saga of a mortgage company in meltdown mode. Earlier posts are here, here and here. I was planning to share a few more comical stories, before heading to a two-part finale, but I think I’ll just wrap it up with one final episode.

Note: I know it’s Monday but, 1) Math is involved 2) A little technical information has been provided 3) I look bad (due to people not believing math), but 4) I was right (verified much later).

As some might recall, I was managing an engagement for a consulting company that was trying to help a mortgage company find $93 million dollars they had lost track of.

As we poured over every process in the bank, looking for places money could be sitting unnoticed and unaccounted for, we kept track of a variety of statistics. I know it’s Monday but bear with me a minute as I explain something that’s critically important.

No bank writes a mortgage and holds it for 30 years.

Banks and mortgage companies “originate” (write) mortgages. They do the underwriting and lend the money. Then, after a few months they bundle that mortgage with 100-1000 others and sell them to Fanny Mae or Freddy MAC or… well, who cares? There are three things to understand here:

1) During the 30-120 days when the bank is “warehousing” (still owns) the mortgage, they make a ton of money because most of the payment is interest.

2) After mortgages are sold, the originating bank continues to “service” them (take payments, pay taxes, send late notices, and such).

3) Banks are paid a servicing fee (a percentage of the mortgage payment) for their services.

The most important thing to know about this whole business is this – a mortgage company needs to be able to service those mortgages for less than amount that they receive for such servicing. I know that sounds obvious but then, if you had $93 million, you’d probably know where it was.

As I was compiling and trying not to analyze those statistics, it became apparent that this bank was spending way more money servicing those mortgages than the fees were being paid.

They were still making money, but that was due to the profit on those warehoused loans. That profit was offsetting the loss on servicing, but that couldn’t go on forever, according to me.

I’m going to save several hundred words – I told the partner on the job – He told the Internal Auditor – he told the Board – they convened a meeting.

I explained the facts in a presentation to the Board. The members present seemed impressed with the data, the analysis and the mathematical certainty of the situation. Then, the President of the bank spoke.

“My young colleague’s dire forecast would be correct, in a scenario where mortgage origination growth declines. What he doesn’t understand is that the growth rate isn’t going to decline. In fact, it’s going to increase. There’s nothing to worry about.”

I tried to explain the math supporting the fact that the growth rate could not continue to rise. The partner and the Internal Auditor supported me, but the Board accepted the President’s assertion that it would.

I knew I was right. I had been trained to analyze the kind of information we had gathered. I had identified the variables and accounted for the possible scenarios. The timing was affected by those variables, but the end result was the same in every scenario. None of that mattered – facts and math are boring.

However, three years later, the bank failed. It failed for the reason I said it would. Some people lost a lot of money. Some people went to jail. Lots and lots of people lost their jobs.

This day is off to a foggy start,
This is an old tobacco field, but that’s not shade cloth. This is some sort of orchard.
Maybe I’ll learn more about this place before autumn.
Now that it’s cooler in the morning, it’s still foggy when I get to the park.
One of my favorite buildings in Hartford.
I am starting to see the sunrise (at least on days I’m heading in a little early).
Clear sky. Low clouds. Pretty sunrise.
We were at this bank long enough to give themselves a name.
I’m going with Birdy-Bird
“Dad, can you just give her a peanut so I can go back to sleep?”
“Did you hear Maddie? She want’s you to give me a peanut.”
These guys aren’t interested in waking up today.
MiMi, showing off that one long sock,
Hi MuMu. I’ll brush you as soon as I get this picture.

91 comments

  2. Ah, the intelligence of those in charge many times makes us shake our head. I’d never wish that on anyone, but, hey, you told them and they chose to not listen. This really is a sad and stupid scenario when you consider they paid a consultant to consult but thought they new better because of a title behind a name. Hope the steps are coming along and every time you hit or screwed something you could get rid of a little frustration.

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  4. I’m beginning to think mortgage companies are as evil as insurance companies. So thankful we paid ours off last year. It felt so freeing!
    Nice shot of Birdy Bird and the squirrel. I hope the latter got a peanut….

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    • The companies are fine, but specific management folks can be evil. It’s all in how they are incentivized. The president of this company was one of the highest paid people in the mortgage industry that year, because his bonus was based on loan volume. The fact that each new loan was costing them money was not a factor. Some of that group went to jail, but he did not.

      Birdy Bird has stiff on the ground to eat, and the little momma squirrel got her peanut(s).

      Liked by 1 person

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  5. It always amazes me that companies hire experts to tell them the truth and then refuse to believe the people specifically trained for the situation. Thought you might like to know it is 10c (50F) here this morning. brrrrrrr

    Liked by 2 people

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    • The message was unpalatable, so make fun of the messenger and lie. I saw that tactic used many times – not always – but most often successfully. It works in business, and politics, and its use is thriving.

      50 sounds nicely chilly. It was 58°f (14°c) here, which is “jacket or no jacket” weather. 50 is “yes, jacket.”

      Thanks!

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  6. Some people just have to be right, don’t they? That bank president should have listened to reason….. It is still so hot here. I am jealous of reading everyone’s cool temps–I want those, too! Your squirrels are so funny, and so adorable. He did get his peanut, right? Have a good one, Dan.

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  7. I enjoyed your story, Dan. Had the president agreed with you, what would you have suggested he do? Our mortgage is with our wonderful local savings and loan. They don’t sell the mortgage, and we like that. Great photos, too. Love the fog and the fields!

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    • Thanks Jennie. This bank had no business being in this business. They were using a service bureau, and their fixed-cost-per-loan was more than they were being paid. The math was easy. Each new loan added to the loss. Even if the new loan volume stayed high, they would have reached a point where the costs would make the business untenable. Local banks that keep the loans continue to earn the interest portion for the life of the loan. When you step into a servicing role, you’ve entered a binding agreement to deliver a service. Unfortunately, it was a service this bank could not perform so they had to pay someone else to do it. This was one of the many underlying problems that led to the savings and loan crisis in the late 80s. It was caused by the deregulation of the industry earlier in the 80s, that let people like this management group operate so recklessly. Ultimately, we (taxpayers) bailed them all out.

      Sorry for the rant.

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  8. Don’t you hate it when you know the answer to the problem, but are ignored because your info isn’t convenient? Happens in work life, happens in family life. Love your photo of the bird on the white chair. Perfect colors and composition.

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  10. Dan, I’m assuming this was back in the early 2000’s, when everyone and his brother jumped into the ‘ free money mortgage’ game. I know lots of folks who walked away with bonuses as the proverbial house burned down. Denial and greed created a lot of mud between the ears during those times.

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    • This was way earlier, Suzanne. This was in the mid-1980s prior to that bank crisis (Savings and Loan industry bailout). Fueled byt deregulation and the attraction of big bonuses to get a small bank established in the housing market, these guys went nuts for the big bonuses.

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  11. The president of the bank probably made a fortune that the bank couldn’t afford, and he didn’t want to mess with a good thing. Guys like that know just when to bail out, too, leaving about 3-6 months before the whole thing goes to hell in a handbasket.

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    • That’s exactly what was happening and exactly what happened, John. The president was written up in an industry magazine as being one of the highest paid mortgage company executives in the country. He rode that horse into the ground and walked away clean.

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  13. This post sparks so many memories of standing by helplessly when your advice is ignored and it ends up hurting innocent people. I wish your piece was necessary reading for CEOs and CFOs everywhere but alas I’ve come to believe in the Peter principle.

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    • Thanks Jan. I’ve written before about “measuring the wrong thing” and how people learn how to game the system. This guy made huge bonuses by saddling the bank with a loan portfolio that eventually put it out of business. As I mentioned (above) this was happening all over America, thanks to deregulation and we taxpayers eventually ended up paying the price. And then, 20 years later, it happened again. 9 more years to go ???

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  14. Dan, that mortgage company saga is unbelievable. Or rather believable after your analysis. It’s the bank president that was unbelievably dense! (shakes head)! Love the mysterious foggy photos! And Maddie, MiMi, MuMu, and squirrel! A good morning smile! 📚🎶 Christine

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    • Hahaha thanks, Mary. I wish I could have driven back up there to deliver a big “I told you so!”

      I deleted the actual math explanation (and the graph), as I didn’t think it added enough. The fur kids are easier to deal with.

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  17. It just boggles my old mind reading the continuing saga of the “missing” 93 million
    dollars!! And the jerk bank manager walked away clean and wealthy. 😡😡

    Love all the foggy pictures, and of course MiMi’s beautiful sock, and MuMu’s beautiful unbrushed body! But the two photos of Maddie and Miss Squirrel, coupled with your captions, win the blue ribbon!! Too funny! 😂 Birdy Bird is a nice addition to your Wild Kingdom!!

    🐾Ginger 🐾

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    • Thanks Ginger. Maddie and the squirrel are in cahoots. I think it’s a girl thing.

      I grew up believing that bad behavior ultimately catches up with people, but I’ve seen lots of people get way with way too much. Maybe it catches up at the big assessment. wWe found their money. We tried to stop the bleeding, but greed won, until the bottom fell out.

      The critters were all in rare form – and I did brush MuMu!

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  18. It’s a scary think when you work (at or closely with) a company that you know is headed for the tubes… or when officers of the company going to jail is a strong possibility. Many years ago, I worked for a small company. (I was the lowest paid employee, and working a second job to make ends meet… or almost meet.) One day their accounting officer came to me and recommended that I quit. She said the owner was embezzling from his own company. I gave 2 weeks’ notice. The company went under within a year. I don’t know whether anyone got into legal trouble or not.
    Have a wonderful new week, Dan. Hugs.

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  20. The main reason I loved math when I was seriously good at it, it never lied. It never failed. It was always right. Unfortunately it sounds like arrogance, stupidity and greed overrode the failsafe truth of math, ignoring the blatant truth that math will point to. How in the world can anyone LOOSE 93 million dollars? Unreal! I’m glad you stuck to your “guns” cuz you know, math is always right. And those who stick by math, are always right. Love your gallery especially the fog pics and of course your 4-footed kids. I laughed out loud about the squirrel.

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  21. One of my happiest days was when we paid off our mortgage. The interest rate was small and the amount remaining not too large, but I just couldn’t stomach paying them (whoever “they” were at that point) anymore.

    It’s hard being right when good people lose their jobs, isn’t it? The evil ones (like the president) probably came out Ok in the end… like usual.

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    • Once a mortgage balance drops to low numbers, they seem to get sold a lot. It’s hard to know who you’re paying. The companies that can still make money servicing low-balance loans are not always the easiest to deal with.

      The president made out fine. The bank that had lost track of $93 M, may not have known how bad it was going to get. They blamed it on the market collapse, but it was a self-inflicted wound. It is sad, because the accounts get sold to banks than can actually handle them, and there’s very little need for the people who were working.

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  22. Sad story, lovely photos. It’s the end of a long, full day, so that’s about all from me. :-) It’s a shame you had to be right, but common sense…wait. Common? Forget what I was going to say. What you mentioned is one reason we paid something off our principal every month, not just our interest. Saved us a boatload of money.

    janet

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  23. It’s sad when the banking institution can’t manage money. At what point did you leave the company, the moment the president didn’t support your analysis or did you wait until the bank failed? I love your fog photos, by the way!!

    Liked by 1 person

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    • Thanks Shelley. I was there as a consultant. Once our team found the $93 million and put procedures in place to make sure it wouldn’t get lost again, we all moved on. Usually, things like “hey, you know you’re going to lose your shirt” observations aren’t even passed on to the client. We were taught to “stick to the work plan” but this was very significant, so I mentioned it to the audit partner.

      It wasn’t the only time I heard the expression “my young colleague” but it was the worst example of logic and math being ignored by people who should have known better.

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  24. Hi Dan – if there’s money around, they’ll stick with it … but jump ship when things go pear-shape. Glad you were right … but feel for those who through no fault of their own lost their jobs and probably their house … shows we must look out for ourselves – cheers Hilary

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  25. Question: approximately when was this audit/analysis done…roughly what year?? Just curious…..it sends me back to the time of bank deregulation and all of the failures shortly there after……as always…great pics!!

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  26. This is why I like to keep things simple and live within my means. I don’t understand the complexities, but when I find someone I trust, like my accountant, I do what she says. Of course we have to be careful who we trust. One clue is if someone loves and takes good care of animals. They should’ve listened to you.

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  29. This is a very sad story. People often assume that those in charge know what they’re doing but often they don’t. Meanwhile so many jobs are lost.

    Sadly, this scenario plays out over and over and the big guys walk away with huge golden parachutes.

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    • The people with mortgages simply found their mortgage being serviced by another bank. Much worse than that was a few mistakes that this bank made while they were servicing the loans. I left a lot of that out of this series.

      The president took his bonuses and moved on. He was sued by a major customer, but he was fine. Someone on his staff did end up in jail for a short time.

      All in all, the employees and the stockholders were the big losers.

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  31. Since I’ve spent about 20 years saying to others, “Listen to your Joey” I really understand the plaintive cry of the voice of reason. Why would you do something hard and right when you can get fat and file bankruptcy doing wrong and easy? I mean, really.
    I am very sad the prize for reading the math in this post was not $93m. Jeez, Dan, I’da shared it with you n’ everything!

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    • I’m sorry there wasn’t a prize, but there also wasn’t a finders fee. These guys lost track of $93 very large – my team found it – all we got was a tee shirt. Actually, we got 15 tee shirts, but that’s still over $6 million each.

      These guys either didn’t have a “Joey” to listen to, or they figured out how to ignore her. It’s sad for the employees. The stockholders lost everything, too, but the Board watched it happen and did nothing, so…

      Liked by 1 person

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