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A Customer-First Culture For Modern Lenders With Steve JacobsonI’ve personally known Steve for quite a few years by his reputation. His reputation has been an amazing leader, an amazing Founder, and a CEO. He has truly built one of the great cultures in lending at Fairway. I am pleased to be joined by Mr. Steve Jacobson. Let’s start at the beginning. How did you get into the mortgage? You started as a loan officer. Let’s start there. After college, I was on the basketball team in Wisconsin. It’s a long story, and nobody cares. I moved to Arizona and got out of Wisconsin. Back into the mortgage business, the guy that got me in is still one of my best friends. What I’ve always liked about it is there’s an intrinsic reward system. You’re helping people, it feels good, and there’s pressure. That pressure always felt good to me. It’s not simple. Long story short, I was starting as a processor and then an originator. There was a year or two where my average amount was in the $40,000 range, and you had to close 30 loans a month to justify doing these. At $200 bucks a pop, you make $75,000 a year. We were taught systems of consistency because you had to close a lot of loans. I was in that place for twelve and a half years. The company was great, but some stuff changed, so I rolled. Being from a small town, you trust everything you hear because you do. I went to a place for a cup of coffee, and everything I was told wasn’t true. That Fairway started many years ago now. I started something from scratch. We were mortgage brokers, and we’ve all evolved since then. You have been on fire with growth for the last few years, and I want to talk a little bit about that. I would love to talk about how you started through a fairly traditional route as a broker, then a banker, and evolved from there. As a loan officer, when you’re starting and having to do those transactions to make a living, I’m more curious from nowadays perspective where people think that’s an extreme amount of volume if you’re a loan officer. Did that seem normal that you had to go at that pace, and you accepted it and did it and figured out the process? I was lucky, Joe. I had a person around me in Phoenix, Scottsdale, that if I had a year when I was doing 500 to 600 units, she was doing 600 to 800 units. I didn’t know. I knew I was busy, but the way we were raised in the business, it wasn’t like that big a deal. You had to close a lot of units to do this because the loan mod was small. To me, it’s about systems of consistency. The whole key has always been the closing piece because you can’t close a lot of loans if you have crappy closings. That was the reason the broker thing I thought would be fine until we started dealing with the closing issues.
It drove me out of my mind. The point is you have to close smoothly to do a lot of volumes. I couldn’t close smoothly as a broker because you’re waiting for the money. In the world nowadays, you and I can be the best friends in the world. I can do your loan in four seconds. If we walk into the closing and there isn’t any money, they say, “Where’s the Jack of the shack?” I did Joe’s loan in four seconds, and nobody cares. They want money at the table. It’s all that matters.
That drove the ability to deliver for the customer, then that transition to being a mortgage banker from a broker.
The truth is, my dad had gotten sick after I started Fairway. I had to move back to Wisconsin because of my father’s illness. I had two goals starting Fairway. 1) I never wanted to have a meeting. 2) I never want to speak in front of people ever. I never wanted to have a meeting. If I could never have a meeting and never speak in front of people, I would have been good.
If that’s held true, Steve, I’d say you built an amazing company with that philosophy.
The growth has been based on need. Salespeople deal with us all the time, and we’re not ever that satisfied. You can have the best product in the world, and it’s like, “What’s next?” All of us working with salespeople, myself included, are like, “What’s around the corner? You better keep giving us the stuff to play with. Otherwise, we get grumpy. We’re high maintenance. We got to play. Let’s go.” A lot of the growth was a reflection of making sure we created enough stuff for people to stay interested.
What I’m hearing you say, which I believe is such a fundamental quality of great entrepreneurs, and you fit that category, is having a mindset where you’re never satisfied with the status quo, and there’s a way to keep leveling up.
In your role and my own role, we don’t have a choice. We could not agree with it, but we don’t have a choice. We got to keep giving something of value that’s different from what we did yesterday.
What was the transition time from becoming a broker, and what did that period of time look like? As you started to become a mortgage banker, before you say, “You felt like you were successful,” what did that look like?
For me personally, I start off with originating loans. I remember one month, I closed 27 loans. Anybody reading this would know that initially, the company that reached out to all of us was Flagstar. Flagstar would offer a warehouse line for people even when they didn’t have that big of a net worth. It was evident real fast that I couldn’t be a broker.
Even their pricing wasn’t that great, but I could always control the money. I’m high maintenance. I want money there the day before for a 9:00, 10:00, and 11:00 closing. You have to have money there. As a broker, you couldn’t control the money. If you can’t control the money, you can’t control your volume because you’re stuck. You’re babysitting that loan. You can’t babysit the loans if you’re going to do volume.
You can’t just do it. You can think about how you can say you want to, but as I said, if their money isn’t there, do they think we’re idiots? We have to have money at the table. It wasn’t all magical, “I want to be a mortgage banker.” No. When I was the President of the Wisconsin Mortgage Bankers Association in the year 2000, I didn’t care.
It was the necessity that drove it.
It had to.
How long of a period of time were you a broker? What period of time was it?
A minute. Here’s the deal. I hadn’t originated for a couple of years. I moved to Texas with a position with the company. When my dad got sick, I moved back to Wisconsin on a minute. We were corporate in April, and he got sick in May. In April and May, I moved him back to Wisconsin that year. As soon as I started originating and started doing loans, I realized we couldn’t do the broker thing. It wasn’t any big monumental goal-setting whiteboard session. I can’t control the money. I got to control the money. I have to. The plan was to do loans and stay away from the messes of this industry and live your life.
2007 and 2008 happened, and we had a net worth of $2 million as a mortgage banker. All of a sudden, the warehouse lines dried up, and you realized you have to have a net worth. Anybody that lived through 2008 in this industry, that’s twelve years in the Fairway. We had 664 teammates at that time. Anybody that is reading that was in this as their own business in 2008, it was all about your warehouse capacity. We had ours chopped in half the first week of December. We begged people to get through that month of December 2008. It’s like you’re playing a basketball game. If you’re going to be in the game, you better shoot. You can’t be in the game and pass the whole time. You better shoot the ball.
You’re not going to be able to play defense, and you got to play offense at that point.
You have to be aggressive. Our net worth was $2 million, and now our net worth is over $1 billion.
You talked to people. Having done this since ‘84, this is an interesting time. You got volume that’s less. You’re not getting paid as much revenue per loan. Everybody’s in the same boat. They can say what they want, but we’re all facing the same stuff. You better have some experience. This is an interesting time.
Whether the storm, we’re going to separate the people that pretend from the real operators. No questions. You scratched and clawed. You came through that ‘08 ‘09-time period. I was on the real estate side at that time. I had a lot of friends in lending. I saw a lot of companies get wiped out. You navigated, and that had been in the business for twelve years at that point. We’re able to come through it out the other side. Looking back, were there any key decisions or key hires that you made during that time that you give credit to being able to navigate? Was it sheer entrepreneurial tenacity?
It’s a key. There are great people in every company. I’m sure yours is too. It was a team effort. We’re lucky to have good relations with GMAC. We got $25 million from GMAC the same week they filed for bankruptcy. Joe Lathrop from Flagstar helped us again. He gave us an extra $25 million before he even had a board meeting.
There’s a gentleman with GMAC that we still follow even though we don’t necessarily need his warehouse line, but we’ll always be loyal to him because of what they did for us in 2008. Those relationships, Joe, you never forget them. The grace of the man upstairs, we were fortunate because on December 19th, 2008, if you went back, you’d see that it was a Friday, and we didn’t know if we had enough money until Monday.
Back then, we were closing 50 to 60 loans a day. If you go to closing, there’s no jack for the shack. That company’s gone. We were fortunate to get through that time. Once you go through that once, it changes you forever because then you realize you have to have net worth and cash. This is the hard part for the sales side. You guys deal with the sales side. The secondary side of this industry doesn’t care about us. Fanny, Freddy, the warehouse lines, the broker-dealers, they do not care.
No, they don’t.
That’s the hardest part of being self-employed in this industry. When you get in on the sales side, you don’t know that side. What happens is you turn the corner, and you get slapped hard. You realize they don’t care about you, and you better have cash. They didn’t want to talk to us. They want, “How much cash do you have?”
You were under $73 billion in volume in 2021. If you recall, what did you guys do in 2008 and 2009? Do you remember?
We were in the $2, $3, to $4 billion range. Like I said, we weren’t taking it that seriously. We didn’t know the competition. We didn’t care. There are people here that I’ve known for over 35 years. It was a cozy little place, but then that happened, and you knew you had to do the net worth thing. The next defining time is we lost a couple of groups to recruiting. That surprised us. They said, “Why did it surprise you?” We thought we had mutual relationships with other companies that we stayed away from each other. When that changed, we said, “Let’s play. Let’s go after this thing. Let’s hire recruiters. Let’s be aggressive.”
I want to dive into a bit about the incredible culture you have built at Fairway. Almost every single one of the leaders I’ve met in your organization credits you as the person responsible for building and fostering that culture. Do you have any key takeaways or words of advice on what it takes to build a culture that is, number one, has everybody’s got such a growth mindset at your organization, which I love? I do get the chance to work with a lot of leaders, and all cultures are not created equally in this industry, as you know. I love knowing any secrets you’re willing to share or advice.
Culture is a day-to-day discipline. If somebody says we have a good culture, as soon as they say it, that comment is over. There’s a guy in college who was the reason I went to school in Wisconsin. His name is Bo Ryan. He was an assistant coach when I was in high school. He coached at Wisconsin for thirteen years. He talked about the precious present a lot in college. He said, “What does that mean?” I remember my sophomore year guarding a guy by the name of Wes Matthews. If you googled him, he got two NBA rings with the Lakers. He backed up Magic Johnson. His son now plays for the Bucks. Back then, we had to guard people full court man to man. It’s the way it was.
He was fast. How fast was he? It’s like, “How in the H am I going to guard this guy every day in practice? This isn’t going to work.” You had to make adjustments. The point is, in the precious present, if you pout about something, you’re going to screw it up again. Get your head out of your backside and play now. Play each time. The precious present has been a discipline that, to me, if somebody says something nice about us, thank you, but let’s move on. If you take that too long, even more than a second, it changes your dynamic.
Let’s play now. It doesn’t matter. Like I said, you and I could be best buddies. If your loan comes in, we close you on a Friday. When you want to close on a Wednesday, you say we suck. If you notice something, you’re right for that transaction. The point is there’s nothing given. It’s a daily discipline. We work on the daily stuff to try to keep it fresh. You deal with it. Salespeople were always wondering what was around the corner. The best I can say is it is a daily discipline.
In terms of driving that daily discipline, as CEO with your leadership team and your direct reports, are you continuously having that conversation and driving that in the organization? I’m curious from my own perspective. There’s no class on being a great CEO and founder of an organization. You’re only successful if you’re able to recruit and retain great leaders. You’ve clearly been able to do that. Are you having a lot of those conversations continuously on the culture? Is it an unspoken rule that, “This is what we do?”
All players want to play. You all want to be coached because you want to try to get better and learn. If you’re in charge of this department, you got to let them play. To me, you let them do their thing. We’re all going to make mistakes. Social media isn’t the truth. It looks like we never make a mistake, but we do.
Everybody’s a superstar all the time.
We’re going to make mistakes and miss shots, but you got to keep shooting. I like to give people the ability to run their departments their way. We come together for issues to solve as a team. You coach the way you want to be coached, which is, “Give me the ball and get out of the way.” You’re going to take a shot that maybe isn’t the best shot, but you learn from it. You keep shooting and keep playing.
I want to spin this last part here, talking about the industry and the time that we’re in. We talked about it a little bit. It’s a unique time in the cycle. We’re in another cycle. Give me your 1,000-foot view of the environment we’re in now at a high level on the types of companies that are going to make it through and be successful and maybe the ones that are going to get crushed in this environment if you have any thoughts about that.
If you think about perspective, take our $72 billion before. That only represented 1.4% of all the loans in the country. If Rocket Mortgage is at $336 billion and there was 6.4% or whatever it was, there are plenty of loans out there if people are willing to think and try different things. Whatever we did to get us into 2021, all of us loan officers better be willing to try different things. We better be willing to go further mentally first, then maybe we even think we can go.
Being a little bit outside your comfort zone, you find that almost necessary now.
It’s for every mortgagee and all of us. If all the CEOs and all the loan officers in the industry were in one room and we were talking through it, everybody has their own opinions, but be willing to bet that people are trying different things. When you think about it, several years ago, we didn’t have much access to information.
I remember rates are at 14.5%. I said, “Isn’t that a high rate?” My boss says, “What’s wrong with you?” The next time I asked him, I said, “Can I get a cell phone?” He goes, “Why don’t you go to the bank and get a roll of quarters?” It’s perspective if we’re willing. Some will, and some won’t. Some people and other mortgages too are having a career in April. They’re having their best April ever. Be willing to bet those are people trying different things.
They made course corrections and adjustments. They’re going to take bets on certain things. It’s excellent in the way you approach that and say, “You’re going to have to do some things differently. You’re not going to be able to wake up and have money flowing in like it has been for some of the originators. You’re going to have to get out and pound the pavement again. Go and spend time building those relationships with your referral partners.” It’s a lot of those types of things. You said that on the leadership side, management side, and sales managers, they’ve got to take it to another level and push beyond what they thought was the normal scope of effort and having to do things. They’re going to stretch themselves this 2022 as well.
Let’s say we try something now or what you did before. The first reaction may be, “That’s stupid. That is not going to work.” A year later, you go, “I’m glad I did that.” We all have those moments. It’s almost like checking your first reaction. It might not be the truth. “I can’t do that. That’s not going to work.” Maybe it does work.
You ever get this when you are talking to salespeople, and it’s like, “I’ve tried everything. I’ve tried that.” You start breaking it down, and you’re like, “Really?” You’ve tried everything. You’ve made the adjustments probably, or probably not.
We almost got to take it further than our own thoughts. That’s hard for everyone because our thoughts are thoughts, but the question is, are they the truth? We have the ability to look back. We’ve all had situations in this industry where we’ve been in for a while where we tried something that we didn’t think would work, but maybe it did. We got to remember to check ourselves now. If it’s a no, no means you’re not going to work.
You’re not going to put the effort to try.
You got to work. What does work mean? You got to meet people. I know it sounds corny, but you got to get out there.
You have to be in motion and put the effort in every single day. By doing that, you’re going to get feedback in the form of whether it worked or didn’t. Sometimes not working is good in terms of feedback because it allows you to make adjustments. One of your philosophies is, “If we learn something doesn’t work, great. We then move on and try something different.”
We all know this to be true too. We don’t live long enough to have our own experiences. We better listen to other people. Why go through the same thing? Hopefully, companies have a culture where they can listen to other people in their own team like, “What happens in this state?” Learn from other teammates because their experiences may save you a lot of time.
You have built not only one of the premier companies in terms of volume but one of the most well-respected organizations. As you look forward, you don’t seem like a guy interested in slowing down. What’s your vision for the organization in the great team you have at Fairway for the next years?
You always have opportunities. Salespeople need opportunities at every turn. The challenge for all mortgagees, including us, is creating opportunities for the next generation, for the next group. All we’re trying to do is create opportunities for the people. There’s a lot of talent in this industry. There are a lot of people doing amazing things at our place and in other places too. All of us mortgagees have to make sure we’re continuing to give people opportunities. That’s all part of it. That’s a discipline for all of us, and we’re looking to do the same.
As you look out in the next few years, that’s an important part of the vision for you.
We were told we should have gone public a couple of years ago. We’re glad we didn’t.
I was going to say, “Are you not glad that was the best decision you’ve ever made?”
We’re glad because of what’s going on this 2022 with all mortgagees. Even more, there are fun things we do here that we know we couldn’t do if we were public. I’ll leave it at that. I don’t want to get into specifics.
We don’t even need to get details. I know exactly what you mean.
There are things that we do that we don’t have to analyze third-party thinking whatever they think. For all of us mortgagees, it’s about creating the culture, the disciplines, and the opportunities for the next generation. There’s talent all over this industry. You see it all over the place. There are amazing people doing amazing things. All of us at sea levels need to keep making sure we give those people opportunities to grow.
It’s well said. Giving your people the opportunity to grow has served you exceptionally well, Steve. Clearly, you practice what you preach. That philosophy is obvious when you look at the results.
It’s what you folks do, Joe. As you know, we give people choices A, B, and C. Whoever you circle is, you got to have this discipline. You have to stay in touch with people. You have to do something different than the competition, but the competition is all about doing this. At a minimum, you need to do this. The Joe’s of the world, what you folks are doing, is important for all of us originators going forward. We need to stay in touch. We know the servicers are going to stay in touch. I don’t care who it is. They’re going to stay in touch. What you do is very important. Hopefully, companies are building great relationships with people like you and your team. We thank you. Have a good day.
Thank you. Cheers, buddy. Have an amazing rest of the quarter. We’ll be in touch.
About Steve Jacobson
Steve does an incredible job leading Fairway. He understands it takes a village of teammates to be successful, and as a leader – he encourages and shares words of wisdom on a daily basis to remind us to #keepplaying, remain humble, kind, and never stop learning.
It is not easy leading over 10,000 employees, but he does so graciously by leading by example. Fairway doesn’t just talk the talk, they walk the walk following and practicing our 10 core values. I’ve never worked anywhere like this before and truly love my job where I get to engage with our employees and share why this is truly the #1 place to work in America!