I recently sold my 50% ownwership interest in Assurity Financial Services, LLC. Assurity is a company that my cousin and I started back in 2002. We started as a couple of loan officers that wanted to “build-a-better-mouse-trap”. We eventually morphed into a mid-sized mortgage bank with around 600 employees. The early days were the most fun, with many very close friends helping to make it possible. But as the years passed, the faces and the landscape changed. The biggest change had to be the amount of risk involved in owning a mortgage bank, then, as opposed to now.
In May of 2005 we converted from a mortgage brokerage to a mortgage bank. I’m not kidding when I say it nearly killed me and the company. It had to be the most trying event of my life, but at the time the rewards outweighed the risks. As we figured out one aspect of the mortgage banking landscape, we would find new rules and regulations that made it almost impossible to operate.
The biggest change was when the Warehouse Lenders changed their requirements for “guarantees”. Initially we pledged the assets of the company to guarantee the warehouse line. Talk about leverage! They were willing to lend us nearly 20 times what our company was worth, so we could fund our loans. At the time I believe the company was worth something like 2 million dollars. It seems crazy for someone to let you borrow that much money to fund loans, until you realize that the loans are what are being held for collateral, not the company. Come on… If we hose them on the entire line, they can only recoup 2 million of their 20. Having the entire company promised to the warehouse lender, was their attempt at getting our full attention. And believe me it worked! I don’t know anyone that worked as hard to get everything right as my partner and I. After all, we had the entire company riding on it. 2 share holders, 600 direct employees and their spouses and children. That’s a lot to consider, every minute of every day
As things started changing and the economic landscape started looking more like a mud-slide than a landscape. The warehouse lenders raised the ante. They began requiring owners of mortgage banks to pledge their personal possessions along with the company’s in order to extend credit. The day we signed the first personal guarantees was the day that I knew it wasn’t worth it.
Estate Planning, Asset Planning, Family Limited Partnerships, Trust Accounts it all seemed to be one big distraction from what we had set out to accomplish in the beginning. Needless to say, I never went down any of those roads. I instead started thinking about how to get away from my company that was now a huge liability to me and my family. Two years later, I’m “out”. I wish there would have been a huge cash event that correlated to me getting “out”. Instead, I hope to get part of the money that I invested into Assurity back out. And all of this is predicated upon Assurity succeeding.
I’m currently looking at different business ventures where I don’t have to risk everything just to go to work. And I can’t help but question the sanity of those that do.
It seems the wave of public and political opinion wants the leaders of companies to risk everything as a normal consequence of their jobs. I have to believe that the best and the brightest are not willing to risk it all.
Maybe one of these days, the risk/reward profile of mortgage banking will change, but until it does you won’t find me leading the charge at any of these companies.
