1) Who, What and Where: (Your name and your formal title at 21st Mortgage).
Tim Williams, CEO and President, 21st Mortgage Corporation.
Note to readers, this is a flashback interview, and other than this red text, it is as originally published
2) Background: (Educational/Professional snapshot before entering the factory-built housing arena. Specifically mention your prior work experience
to 21st at Clayton and VMF, but time before that is welcome too).
I was employed with Clayton Homes, Inc. from 1974 until 1995. I served on the executive committee of Clayton Homes and was president of the company's financial arm, Vanderbilt Mortgage and Finance. I was part of the management team that saw Clayton Homes go from a 15-store chain in 1974 to a public company in 1983 and on to become the largest retailer in the manufactured housing industry. I hold a BS and MBA from the University of TN, and I acquired both while working full time at Clayton Homes.
3) When and How: (When and how you began with 21st).
I left Clayton Homes in 1995 to start 21st Mortgage Corporation. We started as a joint venture with American Homestar Corporation. American Homestar owned 50% of 21st and shortly after we negotiated that, we negotiated to sell 25% of 21st to Clayton Homes. Both companies supported us in very different ways. American Homestar allowed us to originate quality business with limited competition from other lenders. We also offered private plans with other manufacturers and retailers that wanted to start finance companies. This took some of the competitive pressure off of us, which allowed us to focus on serving the customer and offer terms that were in the consumer’s best interest. It also allowed us to price the business to cover expected losses.
The Clayton relationship allowed us to piggy back on Vanderbilt Mortgage’s access to the asset backed securities market. This gave us access to a very efficient funding source without having huge volumes of business. Everyone who entered the market had the same goal of selling their loans on Wall Street and getting the same execution as Green Tree/Conseco. In those days, Green Tree could take $100 million of loans to Wall Street and get back $104 Million. It was a unique environment that rewarded lenders for taking extraordinary risks by originating manufactured housing loans to less than credit worthy consumers. Within five years of starting 21st Mortgage, there were about sixty companies started with plans to offer manufactured housing financing on a national basis. Of that group of companies we are the only survivor.
4) What are your personal interests or hobbies? How do you like to spend non-work time?
I enjoy playing tennis, running, scuba diving, and flying as a multi-engine, instrument rated pilot.
5) 21st was honored with the Totaro Award. Tell us more about that, along with the firm's other awards and recognitions over the years.
I was honored to receive the Totaro Award at the 2006 Winter MHI meeting. The award was named for Dick Totaro, who was a true leader in the industry. He
considered us to all be fraternity brothers instead of competitors. I am also proud to have 21st Mortgage recognized by MHI as the National Lender of the Year for the last three years.
6) What was it like becoming a part of the Berkshire Hathaway family of companies? That took place via Clayton in December of 2003, correct? And since people are always curious about Warren Buffett, tell us a story that illustrates how he works with professionals and companies under the Berkshire Hathaway umbrella. Along the same lines, for those who don't work personally with Kevin Clayton, please share a story that illustrates working with him.
Looking back, I can identify a few milestone events in my career that were what you might call, make or break decisions. The sale to Berkshire Hathaway is certainly one of those decisions. In 1999 the management team and Clayton acquired the American Homestar interest in 21st Mortgage. This meant that Clayton was now a 50% owner of the company. So in 2003, after Berkshire Hathaway acquired Clayton, it was only natural that Berkshire would instruct Clayton to either unwind the 21st Mortgage relationship or acquire the remaining 50% of the company. No one could have predicted the financial markets were going to melt down in 2008, but in retrospect it is clear that both Clayton and 21st Mortgage would have struggled to survive the economic climate of 2008. It is highly unlikely we would have been able to find the funding that Berkshire Hathaway has provided over the last five years.
Warren Buffet is a unique individual with a unique style of managing his companies. He is accessible to Kevin Clayton and very supportive, but he leaves the responsibility for managing the company up to the people who built it.
7) In some snippets from one of his famous annual letters to Berkshire Hathaway shareholders a couple of years after the mortgage/housing bubble burst, Warren Buffett wrote this: We finance more manufactured-home buyers than any other company... At the origination of these contracts, the average FICO score of our borrowers was 648, and 47% were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable credits....Nevertheless, our portfolio has performed well during conditions of stress...we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.” Among the points Mr. Buffett was making is that loan portfolios like your firm makes perform, even when many in conventional housing did not. What role does proper, experienced servicing of the loans by 21st play in the success of the company? What other insights can you share about Mr. Buffett's comments?
As a portfolio lender it is extremely important that we excel in servicing our loans. With years of experience we have established a great leadership team and set proper systems and policies to originate high performing loans, as well as manage our portfolio with excellent default and delinquency numbers.
The CFPB has recently released servicing standards for the mortgage industry. They have identified best practices that include single source of contact, mortgage escrow accounts, and servicing practices. While we will need to better document all of our practices and performance measures in order to satisfy the CFPB, we really will not need to change very many procedures. We have always taken great pride in developing a one to one relationship with our customers. I think this is a primary reason our loans perform better than our peers.
8) Usually one of the hottest topics in manufactured housing revolves around financing. You are in the thick of the efforts of meeting the CFPB, in efforts to reform Dodd-Frank through HR 1779 and the companion bill that will be filed in the Senate. For those readers who have not yet picked up the phone, sent an email, fax or letter to the Congressman or Senators about this issue, please tell us why grass roots action is essential. What does passage of this 'fix' for the unintended consequences of Dodd-Frank mean to the typical retailer or community operator?
It is extremely important that everyone in the industry contact their Congressman and request they co-sponsor HB-1779, the Preserving Access to Manufactured Housing Act.
The act addresses two key provisions.
HOEPA: As the regulations are currently written, approximately 35% of the loans we originated in 2012 will fail the rate triggers that become effective in January. The CFPB has the authority to set higher limits or waive the requirements for manufactured home purchases in order to balance the consumer protections in HOEPA with the availability of affordable credit.
2) Mortgage Originator Definition: The definition of Mortgage Originator needs to more clearly exclude manufactured home retailers and sales people, provided they do not receive any additional compensation for helping a customer find financing or apply for a loan. MH sales people need to help their customers find a lender that offers loan products for the purchase of manufactured homes and assist in submitting the loan application to the lender. As the regulations are currently written, providing either of these services may make the sales person a Mortgage Originator which creates significant challenges for lenders and retailers, including requiring a sales person’s commission for selling a home to be included in the calculation of “points and fees” that are limited under the regulations, even though they are not involved in offering or negotiating any of the customer’s loan terms and they receive no compensation from the lender.
If this happens, the result will be that nearly all manufactured housing loans will fail the HOEPA points and fees limits.
If we do not receive relief from Dodd-Frank, financing in our industry is doomed. Presently, over 9 million families live in manufactured homes and would have very few options in selling their homes because of the lack of financing.
9) Problem solving and team building are two of the keys that CEOs and C-Suite level leaders deal with routinely. What sort of process do you use in your leadership role and why?
We have always taken pride in hiring the brightest and best college graduates, and I believe we have the best team in the industry. To the greatest extent possible, we assign responsibility to our managers for their operating costs, revenue contribution, and portfolio performance. We hold each other accountable for the things within our control. Monthly we conduct operational board meetings with each operating unit’s management team. In these board meetings, we talk about what went right last month and where we need to focus in the future - both the near future and over the coming years. We also meet as a larger group each month with all our senior team members to make sure we are all on the same page. We have a management team that makes good decisions and has developed policies and procedures that promote accountability and opportunity for our team members.
10) About what is the percentage of the home loans you originate that are from street retailers, communities and direct lending to consumers looking to buy a manufactured home?
About 70% of our business is from street retailers, 25% from communities, and 5% from direct lending.
11) A competitor of yours told me privately that they want to see 21st do well, and that even though their programs were quite different than yours, they work closely with you on Dodd-Frank and other finance related issues. When I asked him to explain that, he said it was in the best interests of the industry for all lenders to do well, because that meant that more retailers and communities would do well. The alternative was unacceptable to him. For those who aren't in an association or aren't heavily engaged in association membership, that may seem like a foreign idea. Please explain for our industry readers the balance between the value of collaboration on political issues, while still being an honest competitor in the market place.
I can’t emphasize enough the importance of active participation by all members of our industry with state associations and MHI. I believe we should support the industry as Dick Totaro believed: we are a fraternity. Today, 21st Mortgage is the only lender serving certain segments of the market. If 21st Mortgage becomes unable to serve those segments because it cannot charge sufficient rate to cover the losses, then the question becomes: “how many customers can the retailer lose and still stay in business?” If the retailers cannot sell the 600 FICO score customer, then they may not be around to sell the 700 FICO score customer.
We need strong associations today more than ever. Part of the reason we have the Dodd-Frank issues is that we were not at the table when the legislation was being drafted. Today we have a wonderful staff at MHI, but they cannot reverse the damage that was done in Dodd-Frank. Only focused effort from across the industry can pass the legislation that we need to save affordable manufactured housing. Our competitors’ biggest threat is not from 21st Mortgage, it is the proposed rules to implement Dodd-Frank legislation.
12) While some still see doom and gloom, 21st has worked hard to grow, even during the downturn. Your industry colleague, UMH CEO Sam Landy, said in an interview with MHProNews that given the large and growing need for affordable housing in the U.S., he sees how manufactured housing could return to new home shipping totals of 300,000 to 400,000. Others inside our industry think we ought to be happy to return to shipments in the 60,000 to 70,000 annual shipment levels. What say you? Why?
I think this year we will see around 60,000 shipments, but I do see the potential of 100,000+ shipments per year in the near future based on consumer demand. The level of manufactured housing shipments will depend upon three things:
Passing H.R. 1779 or getting other relieve from the CFPB.
A generally healthy economy. The economy feels like it is improving, but I wonder what it would be like without the stimulus of Bernanke’s QE3+ funding, and President Obama’s $700 billion deficits.
3) The amount of subsidies for other forms of housing. Today there are more federal subsidies for housing than any time in history. Just consider the government funded and underpriced FHA loans, the government funded and underpriced USDA loans, QE3 purchase of GSE debt, Section eight subsidies, and finally the tax free funding of municipal housing authorities. If all these subsidies were to go away, I think our industry could easily return to 300,000 annual shipments annually.
13) Your company works with independents, with vertically integrated firms such as Clayton and American HomeStar as well as community operators of all sizes. So you and your team see what works and what doesn't. Hall of Fame Manufactured Housing retailer Mike Evans said in an interview with MHProNews that “We really are our own worst enemy.” But Mike Evans also stressed that there are always opportunities in our industry and that part of their success came from focusing on opportunities and training their people in an ongoing way. Compare and contrast those two realities, from your perspective please, of how the industry has its opportunities. But at times people in our business are doing – or not doing – things that create issues that hamper potentially better sales performance.
I think today's retailers and community operators have a much better attitude toward their customers. I don’t see retailers taking suicidal risks that we have seen in years past. I think today's retailers sincerely try to match their customers with good homes that meet their needs. Community operators are also taking a long term view of the consumer and recognizing that the occupancy level in their communities is dependent upon satisfied customers who think they are being treated fairly by the community operator.
In an effort to strengthen our commitment to our consumers, independent retailers, and community operators, and in preparation for a challenging regulatory environment, 21st Mortgage Corporation introduced consumer-focused marketing products to better inform consumers of available lending programs. These marketing products were designed to educate both the premium credit customers, and the credit challenged customers who may have difficulty securing financing for their home purchase.
We have also focused on the land-leased community operator and their customers by creating and marketing several new community financing programs to assist operators in improving their occupancy. 21st Mortgage Corp. continues to strive for high levels of customer service, while working to create new, innovative programs.
14) Industry veteran and Green Courte Partners Chairman, Randy Rowe, called for a 5 point plan for industry recovery. It included the following: A) Better Warranties and Customer Service, B) Dealing effectively with Chattel Financing Issues, C) Economic Security for Our Customers, D) A Multiple Listing Service(s) (remarketing system for individuals, lenders) and E) A National Marketing (Image) Effort. What would you say about these bullet points? Do you think that other possible ideas, like more "best practices" and professional sales training, are also needed? What say you on the keys for moving ahead?
Manufacturers need to stand behind their warranties and retailers need to satisfy all promised items to their customers. As we all know, word of mouth and positive shared experiences from our customers can be very powerful. As an industry, we are raising the quality level of the home buying experience. We need to keep improving the experience.
Dodd Frank and the CFPB are the main concerns presently. There is not a lack of chattel financing today, but it will be a serious problem come January, unless we can pass 1779.
The national job figures play a key role in our industry and will continue to affect the MH market. Another part of the equation is our consumers’ ability to resell their homes, and whether there will be financing options available.
An MLS for Manufactured Housing? I think we already have on line listing programs for consumers that are working effectively. At 21st Mortgage, we field 7000 calls a month from inquiring consumers who see our repossession listings.
A National Marketing effort sounds like a good thing, but it is terribly expensive. I don’t think you can make it cost effective.
A professional sales training program for our retailers is a great idea. Some of the independent retailers we serve are very successful because of high levels of customer service and professionalism. Other retailers struggle because of the lack of these two very important business practices.
15) In spite of what HERA 2008 called for – namely, the Duty to Serve (DTS) manufactured housing, first the GSEs and now the FHFA have failed to implement those provisions. While most pros say the focus needs to be on passage of HR 1779 and the companion Senate bill, at some point, should the industry refocus on the DTS? Or is this something that is just not worth the effort?
I think it is a total waste of time to talk about DTS until Congress reaches a consensus on the GSEs. Will the GSEs exist as we know them? What will be their mission? I think it is a million to one shot that the FHFA and either of the GSEs agree to finance chattel manufactured homes while the larger issues remain unresolved.
16) What do you consider the largest challenges facing the industry in general today? Where do you see our largest opportunities?
Obviously the regulatory environment is our biggest challenge today. It is critical that we secure the corrective legislation in order to continue providing affordable housing for families.