A Customer-First Culture for Modern Lenders

Joe Welu: Hello, everyone. I'm Joe Welu. Thanks so much for tuning in to Expert Insights where we talk with industry leaders across modern financial services to discuss leadership and innovation. Let's get started. I've personally known Steve for quite a few years by his reputation. His reputation has been as an absolute amazing leader, an amazing founder and CEO, and he has truly built one of the great cultures in lending at Fairway. So I am pleased to be joined by Mr. Steve Jacobson. Steve, first question, let's start at the beginning, man. How did you get into mortgage? You started as a loan officer. Let's let's start there.

Steve Jacobson: After college, it was on the basketball team at Wisconsin. It's a long story. Nobody cares. Moved to Arizona, got out of Wisconsin. Back into the mortgage business, the guy that got me in is still one of my best friends. Part of why I've always liked about it, there's an entrenched reward system. You're helping people, feels good, there's pressure. That pressure's always felt good to me. It's not simple. The long story short, I mean, starting off as a processor and then originator, there was a year or two, my average loan amount was in the 40,000 range. So you had to close 30 loans a month to justify doing this. 30 loans at 200 bucks a pop, I mean, do the math, you make 75 grand a year. So we were taught systems of consistency because you had to close a lot of loans. So, I was with the place for 12 and a half years. Some stuff changed. Company was great, but some stuff changed so I rolled. I mean, being from a small town, you trust everything you hear because you just do. But I went to a place for a cup of coffee, everything I was told wasn't true. So that's how Fairway started actually, 26 years ago today. I started something from scratch and was just really a mortgage broker and we've evolved since then.

Joe Welu: So you guys have, I mean, just been on fire with growth the last few years and I want to talk a little bit about that. But I would love to talk about also, you started through, I think was a fairly traditional route as first a broker then a banker and evolved from there. When you were doing as a loan officer, when you were starting out and having to do those kinds of transactions to make a living, I'm just more curious from today's perspective where people think that's just extreme amount of volume if you're a loan officer, did that seem normal that you had to go at that pace and you just accepted it and did it and figured out the process?

Steve Jacobson: I was lucky, Joe, I had a person around me in Phoenix, Scottsdale that if I had a year where 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 amounts were so small. So to me, it's always been about systems of consistency and 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. I had a full head of hair. I mean, I did, but point is, I mean, you have to close smooth to do a lot of volume. I just couldn't close smooth as a broker because you're always waiting for the money. In today's world. I mean, you and I could be best friends in the world, I could do your loan in four seconds. Four seconds, I can do your loan. If I walk into the closing and there isn't any money there, they'd say," Where's the Jack for the shack?" I mean, because I did Joe's loan in four seconds and I really did. Nobody cares. They want money at the table. I mean, it's all that matters.

Joe Welu: So that really drove the ability to deliver, for the customer really drove that then. That transition to being a mortgage banker from broker.

Steve Jacobson: I never wanted to. I mean, I wasn't... the truth is my dad had gotten sick after I started Fairway. I had moved back to Wisconsin because of my father's illness. I had two goals starting Fairway. I never wanted to have a meeting ever, like ever. No meetings ever. Number two, I never wanted 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 was good. So, just do long-

Joe Welu: crosstalk pretty good. Hold it, if that's held true, Steve, I'd tell you, you built an amazing company with that philosophy.

Steve Jacobson: Well, the growth really, Joe, it's really been based on need. Because as you know, us sales people, and you know this, you deal with us all the time, we're not ever really that satisfied. You can have the best product in the world and it's like," What's next?" And all of us working with salespeople, myself included, it's like," What's around the corner." You better keep giving us stuff to play with; otherwise we get grumpy. And we're high maintenance. We got to play. Let's go. So a lot of the growth, Joe, is really just a reflection of making sure we created enough stuff for people to stay interested.

Joe Welu: I think what I'm hearing you say, which is I believe is such a fundamental quality of great entrepreneurs and you clearly fit that category, is having a mindset where it's just you're never satisfied with the status quo and there's always a way to keep leveling up. Do you agree that describes it?

Steve Jacobson: We have no choice, Joe. Your role, my own role, we don't have a choice. We could not agree with it, but we don't have a choice.

Joe Welu: I agree.

Steve Jacobson: We got to keep giving something of value that's different than we did yesterday.

Joe Welu: What was the transition time from becoming a broker and what did that period of time look like, then as you started to become a mortgage banker, before you say" you felt like you were really successful"? What did that look like?

Steve Jacobson: Well, I mean, for me personally, I mean I just start off originating loans. I remember one month I closed 27 loans in 24, whereas a mortgage banker and anybody listening to 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 you didn't have a big of a net worth. It was pretty evident real fast that I couldn't be a broker because even their pricing wasn't that great, but I could always control the money. And I'm high maintenance. I want money there the day before for a 9 o'clock, 10 o'clock, 11 o'clock closing. You just have to have money there. As a broker, I mean, 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.

Joe Welu: You're keeping scale.

Steve Jacobson: You just can't do it. I mean, you can think about it. You can say you want to. But I mean, like I said, if their money isn't there, dude, they'll think we're idiots. So we have to have money at the table. And so, that wasn't really some magical," I want to be a mortgage banker." No. I mean, I was the President of Wisconsin Mortgage Brokers Association year 2000. I didn't care.

Joe Welu: It was necessity that drove it.

Steve Jacobson: Had to.

Joe Welu: How long of a period of time were you a broker? What period of time was it?

Steve Jacobson: A minute.

Joe Welu: Oh, very short.

Steve Jacobson: I mean, as soon as I crosstalk Well, here's the deal. So, I hadn't originated for a couple years. I moved to Texas with a position with the company. And so, when my dad got sick, I moved back to Wisconsin on a minute. We incorporated in April, he got sick in May. So April, May, I moved back to Wisconsin that year. As soon as I started originating and started doing loans, I realized we can't do the broker thing. I mean, it wasn't any big monumental goal setting, white board session. It was like, I can't control the money. I got to control the money. I have to. But plan was to just do loans and stay away from the messes of this industry and just live your life. But then, you know, 2007, 2008 happened. We had a net worth of 2 million as a mortgage banker kind of plugging along. And all of a sudden, the warehouse lines dried up and you realized you have to have a net worth. Anybody that lived through to'08 in this industry, and of course that's 12 years in the Fairway. We had 664 teammates at that time, I remembered specifically. At that time you realize if you're going to be in this, and anybody that is listening that was in this as on 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, December of 2008. After that, you knew if you're going to be in this, I mean, you're in. It's like playing a basketball game. If you're going to be in the game, you better shoot. You can't just be in the game and pass the whole time. You better shoot the ball.

Joe Welu: You're not going to be able to play defense and just meander, you got to be. You got to play offense, right, at that point?

Steve Jacobson: You got to be aggressive. And so, that's when we started... Our net worth was 2 million. Now our net worth is over a billion.

Joe Welu: By the way, that's absolutely incredible.

Steve Jacobson: Well, I mean, right now, I mean this industry and you know, you talk to people, I mean, having done this since'84. This is an interesting time. You got volume. It's less. You're not getting paid as much revenue per loan. I mean, 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. I mean, this is an interesting time.

Joe Welu: Weather the storm.

Steve Jacobson: You better have staff.

Joe Welu: We're going to separate the people that pretend from the real operators. No questions. So, you guys scratched and clawed, you came through that'08,'09 time period. I was personally on the real estate side at that time. I had a lot of friends at lending, saw a lot of companies get wiped out. You guys navigated that, had been in the business for 12 years at that point, were able to come through it out the other side. Looking back, was there any specific key decisions, key hires that you made during that time, that you give credit to be able to navigate that? Or was it just sheer entrepreneurial tenacity?

Steve Jacobson: No, it's always a team. I mean, there's great people in every company, like I'm sure yours too. It was a team effort and there's people. We were lucky to have some good relationship with GMAC. I remember we got 25 million from GMAC the same week they filed bankruptcy. Joe Lathrop from Flagstar helped us again. He gave us an extra 25 million before he even had a board meeting. I mean, there was people. 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.

Joe Welu: Those relationships.

Steve Jacobson: Those relationships, Joe, you never forget them. And you have the grace of the man upstairs had a lot... I mean, we were very, very fortunate. Because December 19th, 2008, if you went back you'd see that was a Friday, we didn't know if we had enough money till Monday. And back then, we were closing 50, 60 loans a day. It's like this, if you go to a closing, there's no Jack for the shack. That company's gone. So we were very fortunate to get through that time. But once you go through that once, it changes you forever. Because then you realize you have to have net worth, you have to have cash. What you also learn is that... this is the hard part for the sales side. You guys deal with the sales side. The hard part is, the secondary side of this industry doesn't care about us. Fannie, Freddie, the warehouse lines, the broker dealers, they do not care.

Joe Welu: No, they don't.

Steve Jacobson: That's the hardest part of being self- employed in this industry is when you get in on the sales side, you don't really know that side. You just don't. Then what happens is-

Joe Welu: crosstalk of the business.

Steve Jacobson: ...you turn the corner and you get slapped hard and you realize they don't care about you, and you better have cash. I mean, sales, you don't want to talk to us. They just want how much cash you have.

Joe Welu: What crosstalk

Steve Jacobson: So, you find any time for us 2008.

Joe Welu: Just under 73 billion in volume in 2021. If you recall, what did you guys do, 2008, 2009? Do you remember what those-

Steve Jacobson: Oh, yeah, we were in 2, 3, 4 billion range. We were just, like I said, we weren't taking it that seriously. I mean, here's the deal. We didn't know what the competition did. We didn't care. We just had our group of people. I mean, we've had some of the same people since... There's people here that I've known for over 35 years. It's was kind of a cozy little place. And then that happened and you knew you had to do the net worth thing. Then, the next defining time is we lost a couple groups to recruiting that surprised us. You say, why did it surprise you? Because we thought we had some mutual relationships with other companies that were like," Stay away from each other." When that changed, we said," Let's go, let's play. Let's go after this thing. Let's hire recruiters. Let's be aggressive."

Joe Welu: I want to dive into a little bit about the incredible culture that you have built at Fairway. By the way, almost every single one of the leaders that I've ever met with in your organization credits you as the person that is responsible for building and fostering that culture. Do you have any, I guess, key takeaways or words of advice on what it takes to build a culture that is, number one, everybody's got such a growth mindset at your organization, which I love. By the way, 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. We'd love to know any secrets you're willing to share or any advice.

Steve Jacobson: Well, personally, I think culture's a day- to- day discipline. I mean, if somebody says we have a good culture, as soon as they say it, it's over. I mean, that comment is over. There's a college coach. There's a guy in college who was the reason I went to school in Wisconsin. His name is Bo Ryan. Bo Ryan was assistant coach when I was in high school. He coached in Wisconsin for 13 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 West Matthews. Now, West Matthews, if you Googled him, he got two NBA rings with the Lakers. He backed up Magic Johnson. His son actually now plays for the Bucks. And so, I remember one practice, back then we had to guard people full court man to man. It was just the way it was. So, he was so 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." So you had to make adjustments. The point is the precious present is, if you pout about something, you're going to screw it up again. If you gloat, because you just made a shot. I mean, get your head out of your backside and play right now. Play each time. So the precious present has been a discipline that, to me, if somebody says something nice about us, thank you. But let's move on. Because if you take that too long, even more than a second, it changes your dynamic. Let's play right now. Let's play because it doesn't matter. It's 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. And you know something? You're right for that transaction. So the point is, there's nothing given you. It is a daily discipline and we work at the daily stuff to try to keep it fresh. You deal with it. Sales people, we're always wondering what's around the corner.

Joe Welu: You have to.

Steve Jacobson: It is a daily discipline. It's the best I can say,

Joe Welu: 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? Just curious from really my own perspective. I think there's not a class on being a great CEO and founder of an organization. Clearly you're only successful if you're able to recruit and retain really great leaders. You've clearly been able to do that. Are you having a lot of those conversations continuously on the culture or is it just sort of an unspoken rule that," Hey, this is what we do."

Steve Jacobson: Well, I mean, all players want to play, right? You all want to be coached because you always want to try to get better and learn. But ultimately you got to give people, if they're in charge of this department, this department, you got to let them play.

Joe Welu: You got to empower.

Steve Jacobson: To me, you got to let them do their thing. I mean, we're all going to make mistakes. I mean, social media isn't the truth. I mean, it looks like we never make a mistake, but we do.

Joe Welu: Oh, right. Everybody's a superstar all the time.

Steve Jacobson: We're going to make mistakes and we're going to miss shots, but you got to keep shooting. So personally, I'd like to give people the ability to run their departments their way. We always come together for issues to solve as a team. But it's like, you coach the way you want to be coached, which is," Dude, just give me the ball and get out of the way." I mean, really? I mean, you're going to take a shot that maybe isn't the best shot, but if you learn from it, you keep shooting and keep playing.

Joe Welu: I wanted to spend this last part here talking a little bit about the industry really and the time that we're in. We talked about it a little bit. Really, really unique time in the cycle, right? We're in another cycle. Give me your sort of thousand foot view of the environment we're in right now and at a high level, 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 on that topic.

Steve Jacobson: Well, I mean, if you think about perspective, take our 72 billion last year, that only represented 1. 4% of all the loans in the country. If Rocket Mortgage did 336 billion and there was 6. 4% or wherever it was, there's plenty of loans out there if people are willing to think and try different things. So whatever we did, whatever to get to us in 2021, we all, all of us loan officers, we better be willing to try some different things. We better be willing to go a little further mentally first than maybe we even think we can go.

Joe Welu: A little bit outside the comfort zone, right?

Steve Jacobson: Yeah.

Joe Welu: You find that almost necessary now.

Steve Jacobson: All of us, every mortgagee. All of us, if we're all together, if all the CEOs and all the loan officers to in the industry were in one room and we really were talking through it now, obviously everybody have their own opinions, but I'd be willing to bet that people are trying different things. Because if they're trying and they're willing to work and they're willing to go out and meet the people and face to face or whatever, there's business out there. When you think about it, Joe, 15 years ago, did we really? We didn't have as much access to information. I remember rates 14 and a half percent, I say," Isn't that a kind of a high rate?" My boss says," What's wrong with you?" The next time, another time I asked him, I said," Hey!"

Joe Welu: Go get some loans.

Steve Jacobson: I said," Hey, can I get a cell phone?" He goes," Why don't you go to the bank and get a roll of quarters?" I mean, it's perspective. If we're willing. Now, some will and some won't. I mean, some people, I'm sure, and other mortgages too, are having a career in April. They're having their best April ever. Well, I'd be willing to bet, those are people trying different things.

Joe Welu: They made course corrections and adjustments, and they're, they're going to take some bets on certain things. I think it's really, really excellent in the way you approach that and say," Hey, 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 again with your referral partners." A lot of those types of things. I also think you said it on the leadership side, in the management side, and sales managers. They've certainly got to take it to another level and push beyond what they maybe thought was the normal scope of effort and having to do things, and they're going to stretch themselves this year as well.

Steve Jacobson: Just like anything, any person in the industry, if we're sitting there talking. Okay, let's just say we try something today or what you did a year ago. The first reaction may be," Well, that's stupid. That ain't going to work." A year later you go," Gosh, I'm really glad I did that." So I think we all have those moments. We all do. So I think all mortgages are going to have to just take it. It's almost like check your first reaction. It might not be the truth.

Joe Welu: Totally.

Steve Jacobson: I can't do that. Or that's not going to work. Well, maybe it does work.

Joe Welu: Do you ever get this when you're talking to salespeople particularly and it's like," Well, I've tried everything. I've tried that," and you start breaking it down and you're like," Really? You've tried everything? You've made the adjustments. Probably not."

Steve Jacobson: Well, we always got to take it further than our own thoughts. That's hard for everyone because our thoughts are our thoughts. But the question is, are they the truth? We've all had, in this industry, long enough to look back. We have the ability to look back and we've all had situations in this industry, if you we've been in it for a while, where we tried something that we didn't think would work, but maybe it did. And so, we got to remember to check ourselves right now. Because our first reaction, if it's a no, usually no means no work." Well, no, it's not going to work." Well, it means you're not to work.

Joe Welu: But I'm going to put the effort in to try, right?

Steve Jacobson: So you got to work. I mean, what does work mean? Well, you got to go meet people. You got to go... I mean, I know it sounds corny, but it's you got to get out there.

Joe Welu: You have to be in motion and put effort in every single day. Then, by doing that, you're going to get feedback in the form of it either worked or it didn't, right? Sometimes not working is just as good in terms of feedback, because it allows you to make the adjustments. It sounds like really that's one of your philosophies is," Hey, if we learn something doesn't work great, then we move on and we try something different."

Steve Jacobson: Then also, 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 because their experience is, why go through the same thing. So hopefully, companies have a culture where they can listen to other people in their own team. What happens in this state? Or what happens in this state? learn from other teammates because their experiences may save you a lot of time.

Joe Welu: You guys have obviously built just 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 that's interested in slowing down. What's your vision for the organization in the the great team you guys have at Fairway for the next five years?

Steve Jacobson: Well, I mean, you always opportunities. There's salespeople need opportunities at every turn. So 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's a lot of people doing amazing things at our place and 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.

Joe Welu: So as you guys look out in the next few years, that's a super important part of the vision for you, I assume?

Steve Jacobson: It's interesting. We were told that maybe we should have went public a couple years ago. We're really glad we didn't.

Joe Welu: I was going to say, are you not glad that was the best decision you've ever made?

Steve Jacobson: Well, it's just, we're glad, because I mean, what's going on this year with as far as for all mortgagees. But even more so, there's fun things we do here that we know we couldn't do if we were public and I'll just leave it at that. I don't want to get into specifics.

Joe Welu: We don't even need to get into details. I know exactly what you mean.

Steve Jacobson: There's give things that we do that we don't have to analyze a third party thinking whatever they think. So for all of us mortgagees, it's about creating the culture, the disciplines, and the opportunities for the next generation. Because there's talent all over this industry.

Joe Welu: There really is, right? crosstalk

Steve Jacobson: There is. Joe, you see it all over the place.

Joe Welu: All over.

Steve Jacobson: There's amazing people doing amazing things and all of us in C levels need to keep making sure we give those people opportunities to grow.

Joe Welu: Absolutely. Well said, man. Obviously, given your people, the opportunity to grow has definitely served you guys exceptionally well, Steve. So clearly you guys, you practice what you preach and that philosophy is obvious when you look at the results, so those takeaways.

Steve Jacobson: Well, I mean, it's like what you folks do, Joe. I mean, I think as you know, we give people choice A, B, and C, and whoever you circle, you got to have this discipline. You have to stay in touch with people. You got to do something different than the competition does, but the competition all is doing this. So at a minimum, you need to do this. I mean, so the Joes of the world, what you folks are doing is very important for all of us originators going forward. We need to stay in touch. It's tough because we know the servicers are going to stay in touch with people. I don't care who it is. They're going to stay in touch. So what you do is very important and hopefully companies are building great relationships with people like you and your team. So, we thank you.

Joe Welu: Oh, thank you, man.

Steve Jacobson: Have a good day.

Joe Welu: Cheers, buddy. Have an amazing rest of the quarter and we'll be in touch. Thanks so much for joining us today. Be sure to subscribe wherever you get your podcast.