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bizzaro
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Joined: 01 Feb 2009
Posts: 4
Location: Western US

ASSURITY PAYROLL CHANGES
PostPosted: Sat Feb 14, 2009 6:25 pm Reply with quoteBack to top

Anyone have any insight on the rumblings I'm hearing regarding Assurity Financial Services retail operation changing payroll proceedures to not pay commissions until the loan funded is sold and delivered to the investor? I would expect that to take weeks, perhaps months, to accomplish.

Any other companies anyone is aware are implementing these type chages?
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Calvin Hamler
Flash in the pan


Joined: 23 Dec 2008
Posts: 67
Location: Castle Pines, CO

Re: ASSURITY PAYROLL CHANGES
PostPosted: Sat Feb 14, 2009 8:00 pm Reply with quoteBack to top

I can provide insight regarding Assurity, since I own 50% of the company and am the one that made the decision. Others may wish to chime in regarding other companies that have done the same thing.

First, let me start off by mentioning a few financial facts about Assurity you all should know:

1.) We have been around for 7 years, and have been profitable every single year. Admittedly, 2008 was a squeaker, as we had the smallest profit in 7 years last year, according to our unaudited 2008 financials. We are currently finalizing the 2008 financial audit and audited financials with our CPA firm, discussing typical year-end adjustments that always have a minor impact one way or the other. Our fiscal year end is calendar year end, December 31st.

2.) One reason for limited profitability in 2008 was that we went through substantial downsizing, like everyone else. We were operating out of 7 offices, and have consolidated into three. One time losses relating to those office closures, disposal of assets no longer in service, etc. had a negative impact on income.

3.) I intentionally purged the balance sheet of every last illiquid loan (i.e. "loans held for investment" or what we mortgage bankers call the "forced servicing portfolio" Smile ) because balance sheet cleanup was a major agenda item of mine in 2008. This also caused one time losses with the disposition of those illiquid assets, which were sold at pennies on the dollar. Strategically, it was the right thing to do, in my opinion, because we were able to monetize those assets, albeit at pennies on the dollar, and the tax benefits from taking the losses, which will be realized in 2009, will actually exceed the bids we hit getting rid of those loans. To my knowledge, there are very few companies that can say they do not have any illiquid or toxic loans on their balance sheet. We can.

4.) Regarding our warehouse lines, we do not have a single loan on our warehouse lines aged past their warehouse period.

5.) More recently, January was a fantastically profitable month for Assurity from a raw net income standpoint. January 2009 net income surpassed net income for all of 2008 and was probably in the top 5 most profitable months we have ever had in our company's history. The rough, back-of-the-napkin math would suggest that, if January's performance were to repeat in future months, we would literally double the company's net worth inside of 6 months.

Now, on to addressing the issues about payroll changes, where the policy changes came from, and why.

The policy change on payroll to having loan officers and account executives "earn" their commissions when loans are purchased as opposed to when they are funded is not only becoming more of an industry standard, but it matches better with GAAP accounting concepts and the company's cash flow timing.

Above, I described the balance sheet cleanup and right-sizing of the income statement, but there is that other financial statement that you must manage your company to, called the statement of cash flows. Going into 2009 looks very different than going into 2008 from a cash flow standpoint, because of some very fundamental changes that have occurred in our industry. First, haircuts on warehouse lines have increased, causing mortgage bankers to have to tie up more of their operating cash to fund loans. The more business you do, the more cash you tie up to help finance the production - it is as simple as that. Secondly, cash collateral requirements for warehouse lines and state surety bonds for those of us that aren't federally chartered and must maintain state licenses have gone up. This further strains cash position.

So, put on your CFO hat and what do you do? Basic cash management says that you accelerate your receivables and you delay your payables, especially short term receivables and payables. Of course you always try to do this in any business, but when you hit a cash crunch, it becomes much more important to micro-manage. By paying your sales force before you have the money in hand, as a mortgage banker, you are doing just the opposite; you are effectively ADVANCING payroll to your people, because you have not yet earned it yourself and do not have the cash in hand.

Unfortunately, given the industry changes of increased haircuts and cash collateral requirements, combined with a record production pipeline that further increases operating cash requirements, I felt it prudent from a corporate governance standpoint to make the decision to fall in line with so many other companies and no longer advance payroll to our sales force. Current policy, as of the beginning of February, is that Assurity's sales personnel and management (including me) earn their commissions when the company has sold the loan to its investors.

Regarding Assurity's warehouse lines, it is indeed true that cycle times slowed down in January. This happened to everyone in the industry because, you see, the aggregators and most investors out there were slammed with business and slowed their purchase times. You can't have rates drop to a point where most of the $10 trillion in outstanding loans on the books are eligible to refi from a rate standpoint, in and industry that just just got done downsizing and that was used to $2 trillion in originations annually from an historical standpoint, and expect all the work to get done at once. Katie bar the door - lines have to start forming, everywhere you turn!

And let's not forget that, industry-wide, warehouse capacity has dropped 90% since 2007, according to the Mortgage Bankers Association. Combine a decimated industry infrastructure with 10% of previous industry-wide warehouse capacity, a non-functioning MBS market, and try to do 5 times average industry production . . . and, um, the math doesn't work.

It seems the industy's warehouse lines are cycling faster now in February, though, and at the time of this writing, Assurity's cycle time is 11 days on average. Not great from historical standards (we would always like to see it lower), but still indicative of the ability to cycle our credit facilities roughly 2.5 to 3 times per month, depending on the ebb and flow of the funding curve.

I hope this was the copious explanation you were looking for.

Kind regards,

_________________
"When they came for everyone else, I said nothing. Then, when they came for me, there was no one left to listen."

Calvin B. Hamler, AMP
CEO & Managing Member
Assurity Financial Services, LLC
www.linkedin.com/in/calvinhamler
www.assurityfinancial.com
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actionjackson
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Joined: 30 Jan 2008
Posts: 49

Re: ASSURITY PAYROLL CHANGES
PostPosted: Sun Feb 15, 2009 3:02 pm Reply with quoteBack to top

calvin

what are you hearing regarding fannie/freddie changing their charter to allow them to be a defacto warehouse bank so direct sellers can have them fund the loan and not the warehouse bank? i wonder if guys like geitner truly get how important the warehouse lenders role really is in the process. if these major warehouse lenders go down and we all cannot lend money this economy will fall deeper into crisis.

i know several parties have tried to reach the fed and treasury guys but ultimately this may require the charter change.

_________________
"SEX PANTHER COLOGNE, IT WORKS 60%, 100% OF THE TIME"

"DEAR 8 LB. 6 OZ BABY JESUS, WE THANK YOU FOR THIS BOUNTIFUL HARVEST OF TACO BELL, KFC AND POWERADE"
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Calvin Hamler
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Joined: 23 Dec 2008
Posts: 67
Location: Castle Pines, CO

Re: ASSURITY PAYROLL CHANGES
PostPosted: Sun Feb 15, 2009 6:08 pm Reply with quoteBack to top

ActionJackson,

Regarding Geithner, if the guy couldn't figure out how to properly fill out his own 1040, I personally doubt his level of competency in understanding the intricasies of warehouse lending and its importance to the functioning of the overall credit markets, but that's just my personal opinion. Finding myself a bit of a Big Government / Big Bank conspiracy theorist these days, I'm only hopeful that someone else in the B.O. administration will be able to get the message across and the policy implemented to expand warehouse lending, because what they are doing currently (nothing) quite frankly stinks.

That being said, I do know a couple of guys personally that have gone to Washington with others from the Mortgage Bankers Association to try to tell the story. One is Larry Charbonneau, Managing Director of Charbonneau & Associates, Inc. (formerly RMIC and Charbonneau Klein before that) and the other is Paul Best, Senior Vice President of warehouse lending at National City (now a division of PNC). These are a couple of the sharpest and most experienced industry veterans I have the personal pleasure of knowing. Larry has been in the M&A business in mortgage banking since the 1970's, and Paul has been in the warehouse and banking business for decades, as well. Larry does a lot of work for warehouse banks conducting due diligence reviews to get the banks comfortable in establishing a warehouse line for their proposed counterparties. As an academic note, National City is currently the largest independent warehouse provider left, that is providing warehouse facilities to the industry not just to support their own correspondent division like some of the aggregators. They have been in the warehouse lending business for 50 years - so they aren't Johnny Come Lately to the scene. Personally speaking, I can tell you that they are AWESOME, and true professionals in warehouse lending. I always describe it as Assurity's best business to business relationship, and they are good people, too.

Larry, Paul and others went to Washington a few weeks ago and got the initial message out, but how far that message will be carried is up in the air. Regarding the proposal for Fannie and Freddie to get into the warehouse lending business, I could see it happening, but it would be interesting to watch the identity crisis that would ensue, don't you think? I mean, here's Fannie and Freddie trying to push back all these loans on the one hand, and then if they were the ones providing the warehouse and repurchase lines on the other, they would not want that same collateral on the books (and the credit lines) of their warehouse lending counterparties.

Identity crisis has been an inherent problem with the GSEs, and we saw that come into sharp focus during the industry meltdown when it became clear that Fannie and Freddie were insolvent themselves and didn't have enough capital to continue to operate and therefore had to be nationalized. Think about it: we used to call them "quasi-governmental agencies" (now they are explicitly governmental agencies). What this meant was that they were chartered to be the backstop of the housing credit markets by purchasing loans and injecting liquidity into the marketplace. In other words, they were chartered to expand homeownership in America. On the other hand, they were set up as publicly traded corporations, so they had the inherent fiduciary obligation to the stockholders. What were they to do? Keep making loans to keep the credit and housing markets propped up, or maximize shareholder value, which is generally accepted as the exclusive goal of any for-profit business - at least it was when I went to business school.

To directly answer your question, I haven't heard anything more recent than the fact that an initial trip by those who know to educate those that need to know in Washington, was made. We can hope that Congress will get it and do something to support the warehouse lending industry. I don't know that doing it thru Fannie and Freddie is necessarily the best way, though, but it's certainly an option. I personally think they should allow private institutions that are leaner, meaner, and better managed than the government institutions and TARP-subsidized banks to access liquidity through a window at the Federal Reserve and / or provide a government guarantee to the warehouse lines such institutions could start to offer. That would go a long way to restoring investor confidence, injecting liquidity into the system via the people that actually know how to use it (and WILL use it), and getting the mortgage and credit markets functioning again.

At least it would give us more than 10% of historic industry-wide warehouse credit capacity to handle all the business everyone is slammed with right now!

_________________
"When they came for everyone else, I said nothing. Then, when they came for me, there was no one left to listen."

Calvin B. Hamler, AMP
CEO & Managing Member
Assurity Financial Services, LLC
www.linkedin.com/in/calvinhamler
www.assurityfinancial.com
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michaelh
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Joined: 20 May 2008
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Location: Arlington, Washington

Re: ASSURITY PAYROLL CHANGES
PostPosted: Sun Feb 15, 2009 8:12 pm Reply with quoteBack to top

Mr. Hamler,

Another exceptional post, thank you for the information.

Michael

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Raymond D
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Calvin Hamler
PostPosted: Sun Feb 15, 2009 9:55 pm Reply with quoteBack to top

One Word:


Refreshing!
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actionjackson
Flash in the pan


Joined: 30 Jan 2008
Posts: 49

Re: ASSURITY PAYROLL CHANGES
PostPosted: Sun Feb 15, 2009 9:58 pm Reply with quoteBack to top

CALVIN

Thanks for that intel. I do know Larry C. ironically, I used to work for him at CKI in the early to mid nineties. My parents have been longtime friends as well. He is indeed sharp and I heard what he was attempting to do but had not heard if he actually met with the right players. Lets hope they perk their ears up and listen to people who know the industry and can help.

Order up some good weather in Denver next week as i will be in town briefly to interview a few AE's. Here is to keeping TPO business alive and kicking.

_________________
"SEX PANTHER COLOGNE, IT WORKS 60%, 100% OF THE TIME"

"DEAR 8 LB. 6 OZ BABY JESUS, WE THANK YOU FOR THIS BOUNTIFUL HARVEST OF TACO BELL, KFC AND POWERADE"
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Kingfish
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Re: ASSURITY PAYROLL CHANGES
PostPosted: Mon Feb 16, 2009 4:26 am Reply with quoteBack to top

The only problem with that method, and this did happen where I once worked, is when the file sits on someone's desk for a while once file is shipped back to lender. You've done your job, files have all been shipped back to your company, and then you don't get paid because someone is jacking off instead of clearing them through post-closing and selling them.
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Calvin Hamler
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Joined: 23 Dec 2008
Posts: 67
Location: Castle Pines, CO

Re: ASSURITY PAYROLL CHANGES
PostPosted: Mon Feb 16, 2009 2:46 pm Reply with quoteBack to top

Kingfish wrote:
The only problem with that method, and this did happen where I once worked, is when the file sits on someone's desk for a while once file is shipped back to lender. You've done your job, files have all been shipped back to your company, and then you don't get paid because someone is jacking off instead of clearing them through post-closing and selling them.


Yikes - that sounds like a clear-cut H.R. issue if I've ever heard of one! LOL!!!

Thanks for the laugh - I needed that!!!

_________________
"When they came for everyone else, I said nothing. Then, when they came for me, there was no one left to listen."

Calvin B. Hamler, AMP
CEO & Managing Member
Assurity Financial Services, LLC
www.linkedin.com/in/calvinhamler
www.assurityfinancial.com
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itwontclose
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Joined: 30 Jan 2009
Posts: 32

ASSURITY SuX*s
PostPosted: Tue Feb 17, 2009 9:27 am Reply with quoteBack to top

Kingfish...

Your Dead-On. This Hambler guy is FOS!! The STATE of Arizona Hauled this Punk into court for Fraud.

Check out the link!

http://www.dfi.wa.gov/CS%20Ord.....8-SC01.pdf

You can never tell where these Mortgage Preditors will end up.
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