Risky Business

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feature Hail to the Chief Like gray matter to a mind, CEOs are a critical cog in every mortgage company's corporate wheel, setting the operational tone and leading the charge to industry success. By Tory Barringer I t's sometimes easy to take for granted the number of factors that make a machine run smoothly—the fans have to spin in sync, the wires must snake around each other, the pins must be arranged just so. Every link in the chain is equally important, representing both the opportunity for success and the risk of failure. In light of conditions in the industry today, one might look at a mortgage banking company in much the same way. With heightened regulation forcing firms to merge—if not entirely shift—their priorities, front offices are being forced to adapt and anticipate what lies ahead. The Brain J ust like any piece of modern technology, a company needs a strong central unit around which everything else is built. In a computer, that would be the processor; in any company, it's the executive team—in particular, the CEO. "The top, No. 1 office is the CEO," said David Lykken, owner and managing partner at Mortgage Banking Solutions. "We're going to watch companies crash and burn because they do not have a strong CEO as a leader." What, then, makes a strong CEO? For one, Lykken explained, true leaders have a way of applying their own style. "They apply their own approach . . . . The No. 1 common denominator in all shapes and sizes is they're true to their own self and their own compass," he said. "They're not trying to be someone else. There's a confidence—not to be confused with arrogance—that they're executing the right direction." It is that word direction that is most associated with leadership. While Lykken sees it as having full confidence in one's convictions, others have more specific ideas. "I think the CEO always sets the tone for the company and keeps it pointed in the right direction," said Germán Salazar, general counsel at AmeriFirst Financial, Inc. "That direction today is high-quality growth, which means growth in compliance, growth in seeking out high-quality loan officers and high-quality borrowers. Those are the key areas as we look at the new mortgage underwriting standards." A deep understanding of how those rules coming down the pipe will affect their business and its growth is paramount to an executive's success. In the last few months alone, a small mountain's worth of guidelines has come down from the Consumer Financial Protection Bureau (CFPB) and its fellow agencies that will all have a role in dictating a mortgagee's direction. And that's not even all of it, says Michele Raneri, VP of consumer information services and vertical analytics at Experian. "It's not just regulations. There's also a lot of rulings and guidances that have come out that aren't necessarily hard and fast laws, but they need to be interpreted also," Raneri said. DataQuick president John Walsh has a more succinct answer: "I think that the CEO and COO are going to be the roles that are going to be most directly responsible for regulatory compliance," he said. "I think it's got to be there." The Focus T he varying definitions of what makes a good leader bring up a question commonly heard when shopping for a new technological toy: What do you want to do with it? With impending regulation weighing heavy on everyone's minds and the January 2014 deadline ticking ever closer, keeping compliant is the first, most obvious answer. On the other hand, with the housing market on the upswing and originations showing more life than they have since the end of the crisis, there's also a call for leaders who know what to do to take advantage of the recovering environment to drive growth. "I think without a doubt, the focus right now is on complying with regulatory changes," Walsh said. "Clearly, lenders are still looking to build profitability, build volume, but at least from lenders we talk to, the first, second, and third focus are on compliance." Lykken echoed that opinion. "Right now, the emphasis has to be on the regulatory environment. To take advantage of the growth, you're dead if you don't do it right," he said. "You can be the best originator . . . but if you are not being compliant—and I mean in ways that most people probably don't appreciate—you are dead." It's a fine line to tread, according to some, because the seemingly positive indicators and improving outlook mean that companies have to be increasingly prudent and diligent. "Virtually to a company, everyone agrees: Credit quality has never been better," said one risk manager from a large mortgage firm who spoke with us on the condition of anonymity. "So that leaves the operational risk, because that encompasses the reputational The M Report | 27

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